Tag: Precious metals (page 1 of 12)

Golden Catalysts

Authored by James Rickards via The Daily Reckoning,

The physical fundamentals are stronger than ever for gold.

Russia and China continue to be huge buyers. China bans export of its 450 tons per year of physical production.

Gold refiners are working around the clock and cannot meet demand.

Gold refiners are also having difficulty finding gold to refine as mining output, official bullion sales and scrap inflows all remain weak.

Private bullion continues to migrate from bank vaults at UBS and Credit Suisse into nonbank vaults at Brinks and Loomis, thus reducing the floating supply available for bank unallocated gold sales.

In other words, the physical supply situation has been tight as a drum.

The problem, of course, is unlimited selling in “paper” gold markets such as the Comex gold futures and similar instruments.

One of the flash crashes this year was precipitated by the instantaneous sale of gold futures contracts equal in underlying amount to 60 tons of physical gold. The largest bullion banks in the world could not source 60 tons of physical gold if they had months to do it.

There’s just not that much gold available. But in the paper gold market, there’s no limit on size, so anything goes.

There’s no sense complaining about this situation. It is what it is, and it won’t be broken up anytime soon. The main source of comfort is knowing that fundamentals always win in the long run even if there are temporary reversals. What you need to do is be patient, stay the course and buy strategically when the drawdowns emerge.

Where do we go from here?

There are many compelling reasons why gold should outperform over the coming months.

Deteriorating relations between the U.S. and Russia will only accelerate Russia’s efforts to diversify its reserves away from dollar assets (which can be frozen by the U.S. on a moment’s notice) to gold assets, which are immune to asset freezes and seizures.

The countdown to war with North Korea is underway, as I’ve explained repeatedly in these pages. A U.S. attack on the North Korean nuclear and missile weapons programs is likely by mid-2018.

Finally, we have to deal with our friends at the Fed. Good jobs numbers have given life to the view that the Fed will raise interest rates next month. The standard answer is that rate hikes make the dollar stronger and are a head wind for the dollar price of gold.

But I remain skeptical about a December hike. As I explained above, the market is looking in the wrong places for clues to Fed policy. Jobs reports are irrelevant; that was “mission accomplished” for the Fed years ago.

The key data are disinflation numbers. That’s what has the Fed concerned, and that’s why the Fed might pause again in December as it did last September.

We’ll have a better idea when PCE core inflation comes out Nov. 30.

Of course, the Fed’s main inflation metric has been moving in the wrong direction since January. The readings on the core PCE deflator year over year (the Fed’s preferred metric) were:

January 1.9%

February 1.9%

March 1.6%

April 1.6%

May 1.5%

June 1.5%

July 2017: 1.4%

August 2017: 1.3%

September 2017: 1.3%

Again, the October data will not be available until Nov. 30.

The Fed’s target rate for this metric is 2%. It will take a sustained increase over several months for the Fed to conclude that inflation is back on track to meet the Fed’s goal.

There’s obviously no chance of this happening before the Fed’s December meeting.

A weak dollar is the Fed’s only chance for more inflation. The way to get a weak dollar is to delay rate hikes indefinitely, and that’s what I believe the Fed will do.

And a weak dollar means a higher dollar price for gold.

Current levels look like the last stop before $1,300 per ounce. After that, a price surge is likely as buyers jump on the bandwagon, and then it’s up, up and away.

Why do I say that?

There’s an old saying that “a picture is worth a thousand words.” This chart is a good example of why that’s true:

Gold Breakout Chart

Gold analyst Eddie Van Der Walt produced this 10-year chart for the dollar price of gold showing that gold prices have been converging into a narrow tunnel between two price trends – one trending higher and one lower – for the past six years.

This pattern has been especially pronounced since 2015. You can see gold has traded up and down in a range between $1,050 and $1,380 per ounce. The upper trend line and the lower trend line converge into a funnel.

Since gold will not remain in that funnel much longer (because it converges to a fixed price) gold will likely “break out” to the upside or downside, typically with a huge move that disrupts the pattern.

At the extreme, this could imply a gold price on its way to $1,800 or $800 per ounce. Which will it be?

The evidence overwhelmingly supports the thesis that gold will break out to the upside. Central banks are determined to get more inflation and will flip to easing policies if that’s what it takes.

Geopolitical risks are piling up from North Korea, to Saudi Arabia, to the South China Sea and beyond.

The failure of the Trump agenda has put the stock market on edge and a substantial market correction may be in the cards. Acute shortages of physical gold have also set the stage for a delivery failure or a short squeeze.

Any one of these developments is enough to send gold soaring in response to a panic or as part of a flight to quality. The only force that could take gold lower is deflation, and that is the one thing central banks will never allow. The above chart is one of the most powerful bullish indicators I’ve ever seen.

Get ready for an explosion to the ups ide in the dollar price of gold. Make sure you have your physical gold and gold mining shares before the breakout begins.

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Gold Up Most In 3 Months, Spikes Above Key Technical Level

Gold continues to shine in the post-Saudi-coup world….

 

And the precious metal just broke above its 50-day moving average, after bouncing off its 200-day on Tuesday.

 

This is gold's best day in 3 months…

 

Gold is gaining as the dollar index slumps to near 1-month lows…

 

Of course, it's USDJPY that really matters (and it just broke below 112.00)

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Another Step Forward For Sound Money: Location Picked For Texas Gold Depository

Via SchiffGold.com,

The Texas Bullion Depository took a step closer becoming operational earlier this month when officials announced the location of the new facility.

The creation of a state bullion depository in Texas represents a power shift away from the federal government to the state, and it provides a blueprint that could ultimately end the Federal Reserve’s monopoly on money.

Gov. Greg Abbot signed legislation creating the state gold bullion and precious metal depository in June of 2015. The facility will not only provide a secure place for individuals, business, cities, counties, government agencies and even other countries to store gold and other precious metals, the law also creates a mechanism to facilitate the everyday use of gold and silver in business transactions. In short, a person will be able to deposit gold or silver in the depository and pay other people through electronic means or checks – in sound money.

Earlier this summer, Texas Comptroller Glenn Hegar announced Austin-based Lone Star Tangible Assets will build and operate the Texas Bullion Depository. On Nov. 3, the company announced it will construct the facility in the city of Leander, located about 30 miles northwest of Austin. According to the Community Impact Newspaper, the Leander City Council has approved an economic development agreement with Lone Star. Construction of the depository is expected to begin in early 2018. Lone Star officials say it will take about a year to complete construction of the 60,000-square-foot secure facility located on a 10-acre campus.

The depository will operate out of Lone Star’s existing facilities during construction. It will provide services nationwide beginning in early 2018, with international services to be offered in the future phases, according to Community Impact.

“This state-of-the-art facility will provide tremendous benefits to the citizens of Leander and will give Texans a secure facility right here in the Lone Star State where their gold and precious metals will be kept safe and close at hand,” Hegar said in the press release.

The Texas Bullion Depository has already established an online presence. You can visit the depository website HERE.

According to an article in the Star-Telegram, state officials want a facility ‘with an e-commerce component that also provides for secure physical storage for Bullion.’ Officials say plans for a depository should include online services that would let customers accept, transfer and withdraw bullion deposits and related fees.

By making gold and silver available for regular, daily transactions by the general public, the new law has the potential for wide-reaching effect. Professor William Greene is an expert on constitutional tender and said in a paper for the Mises Institute that when people in multiple states actually start using gold and silver instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).

 

“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

University of Houston political science professor Brandon Rottinghaus called the development of a state gold depository a step toward independence.

“This is another in a long line of ways to make Texas more self-reliant and less tethered to the federal government. The financial impact is small but the political impact is telling, Many conservatives are interested in returning to the gold standard and circumvent the Federal reserve in whatever small way they can.”

The Texas gold depository will create a mechanism to challenge the federal government’s monopoly on money and provides a blueprint for other states to follow. If the majority of states controlled their own supply of gold, it could conceivably make the Federal Reserve completely irrelevant.

The depository is part of a broader movement at the state level to facilitate sound money, and potentially undermine the Fed’s money monopoly. A number of states have repealed taxes on the sale of gold and silver over the last two years, and that trend is expected to continue. A legislator in Alabama has already filed a bill to repeal the sales and use tax on gold, silver, platinum, and palladium bullion and coins in that state. As Ron Paul has said, “We ought not to tax money – and that’s a good idea. It makes no sense to tax money.”

Reporting from the Tenth Amendment Center contributed to this report.

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As Bitcoin Nears $8000, American Investors Plan To ‘HODL’ Until It Hits $196,000

Overnight saw the price of Bitcoin surge to $7997 following Zimbabwe chaos and defaults in Venezuela, rebounding from 'the world is ending' $5555 last weekend.

However, if American investors are to be believed, the cryptocurrency has a long way to go before they are selling

As CoinTelegraph reports, a new survey among Americans indicates that the average investor will not coimpletely exit Bitcoin until its price hits $196,000…

image courtesy of CoinTelegraph

LendEdu commissioned a survey in November 2017 of 564 Americans who had invested in Bitcoin. While surveys have been done in the past to gauge the awareness of the general public about Bitcoin, this survey focused on American Bitcoin investors and their sentiments.

We have come a long way from 2015, when 65% of Americans surveyed didn't know what Bitcoin was. The questions asked in the survey ranged from their reasons for investing in Bitcoin to when they would sell all their Bitcoins.

Sell all your Bitcoin?

The average price at which the survey respondents said that they will sell all their Bitcoins is $196,166 per Bitcoin. This represents 30x the value of Bitcoin prevailing at the time of the survey. It is to be noted that this is the price at which the respondents will sell all their Bitcoins. Almost a third (32.62%) have sold some of their Bitcoins since they started investing. It is tempting to book profits, given how the price of Bitcoin has rallied in the last year.

Most of the respondents plan to hold their Bitcoins at least one year, with only 16.49% planning to sell sooner than that. According to the survey, 21% of Bitcoin investors plan to hold on to their coins for at least seven years, and 11.7% say they will hold the currency for 10 years or longer.

Store of value or speculative investment?

While pundits debate whether people are investing in Bitcoin because they treat it as a store of value or as a speculative investment, the survey results indicate something completely different. According to LendEdu:

“The most popular selection, chosen by 40.78 percent of respondents, was "I believe Bitcoin is a world changing technology." It is interesting to see that the plurality of Bitcoin investors are backing the technology as the primary reason for investing. Often, financial professionals speculate that Bitcoin investors are chasing a big payout.”

It seems that the naysayers are wrong, and these aren’t merely “greater fools” chasing huge gains. Instead, American Bitcoin investors are apparently sophisticated enough to realize the value of the project’s technology.

The next largest group of respondents see Bitcoin as something akin to digital gold:

“The second most popular reason why investors liked Bitcoin, chosen by 21.81 percent of respondents, was for the possibility of long term storage of value of it. Many financial professionals often compare Bitcoin to precious metals like gold, silver, and platinum. For centuries, investors have used precious metals as a way to diversify away from government backed currency.”

Worried About Safety

Another big takeaway from the survey is that almost half (44.15%) of the respondents were worried about the technological safety of their Bitcoins. This isn't surprising, considering high profile cases such as Mt. Gox. That exchange, the largest in the world by volume, went bust and its former CEO was arrested in Japan on embezzlement charges. He has pleaded not guilty.

In addition to the ill-fated Mt. Gox, numerous other exchanges have faced security problems. Multiple exchanges have been hacked and their customers’ Bitcoins have been lost. While Bitcoin holders can follow certain practices like keeping their Bitcoins in cold storage to increase security, the survey shows that ordinary investors continue to worry about the safety of their coins.

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India’s Continued War on Gold Causes a Monstrous Increase in Silver Imports

 

India’s Continued War on Gold Causes a Monstrous Increase in Silver Imports

Written by Nathan McDonald, Sprott Money News

 

India's Continued War on Gold Causes a Montrous Increase in Silver Imports - Nathan McDonald

 

For anyone that has followed my writing for some period of time, you will remember the series that I wrote, which broke down India’s war on gold and how it was going to fail in its goal – and fail spectacularly it did.

 

 

This series went on and through time, my initial estimations were proven correct – the officially reported number of gold imports did indeed crash, but this was simply because the black market exploded. Smuggling of gold into India increased dramatically and all kinds of innovative ways of getting the metal into the country at reduced costs were created. The free market exerted its will and as always, won the day.

 

 

Undoubtedly, there was some reduction in imports, but not as much as the government of India was hoping for. Yet, there was one other prediction that was made during this time period, of which has also been proven correct through time. The demand for silver was going to explode.

 

 

India in the past has had a history of being the largest importer of the yellow metal, which it has only recently been dethroned from. Their appetite for gold is insatiable and therefore it was only logical to assume that a large percentage of the funds intended to flow into gold, were going to go to the next best thing: silver.

 

 

This has and continues to prove to be the case. As reported, imports of silver in September exploded higher, increasing by a whopping 152% year over year! This is coming on the back of an already significant surge seen in the month of August.

 

 

566.778 tons of silver were imported throughout the month of September, up from 225 tons in September 2016. This is a massive and huge increase, indicating that India’s appetite for precious metals not only remains strong, but is increasing, despite the government’s best efforts to clamp down on it. In fact, this was the highest level seen since 2009.

 

Meanwhile, in the West, precious metals continue to be scorned and ridiculed, cast aside and forgotten as the latest and greatest thing continues to siphon funds out of this market. Cryptocurrencies, led by Bitcoin, continue to drain funds that would otherwise have gone into the precious metals space.

 

This is not entirely a bad thing, unless you are fully committed to the precious metals space. As many of you know, I have been a long time supporter of Bitcoin, writing about its value from its infancy. But, still, as I have always stated, it is no replacement for gold and silver, which have stood the test of time for over 10,000 years and will continue to do so for the foreseeable future. They are two different assets and
play two different roles in the protection of your portfolio.

 

I expect 2018 to be the year of gold and silver’s resurgence after the monumental explosion seen throughout this year in the price of Bitcoin. This will be a price increase that has made many feel like they have “missed the boat”, which will cause them to search for other opportunities.

 

I expect the West to once again wake from its slumber and take cues from countries such as Russia, China and India, who continue to take prudent steps and diversify into hard assets.

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

India’s Continued War on Gold Causes a Monstrous Increase in Silver Imports

Written by Nathan McDonald, Sprott Money News

 

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Mueller Subpoena Spooks Dollar, Sends European Stocks, US Futures Lower

Yesterday’s torrid, broad-based rally looked set to continue overnight until early in the Japanese session, when the USD tumbled and dragged down with it the USDJPY, Nikkei, and US futures following a WSJ report that Robert Mueller had issued a subpoena to more than a dozen top Trump administration officials in mid October.

And as traders sit at their desks on Friday, U.S. index futures point to a lower open as European stocks fall, struggling to follow Asian equities higher as the euro strengthened at the end of a tumultuous week. Chinese stocks dropped while Indian shares and the rupee gain on Moody’s upgrade. The MSCI world equity index was up 0.1% on the day, but was heading for a 0.1% fall on the week. The dollar declined against most major peers, while Treasury yields dropped and oil rose. 

Europe’s Stoxx 600 Index fluctuated before turning lower as much as 0.3% in brisk volumes, dropping towards the 200-DMA, although about 1% above Wednesday’s intraday low; weakness was observed in retail, mining, utilities sectors. In the past two weeks, the basic resources sector index is down 6%, oil & gas down 5.8%, autos down 4.9%, retail down 3.4%; while real estate is the only sector in green, up 0.1%. The Stoxx 600 is on track to record a weekly loss of 1.3%, adding to last week’s sell-off amid sharp rebound in euro, global equity pullback. The Euro climbed for the first time in three days after ECB President Mario Draghi said he was optimistic for wage growth in the region, although stressed the need for patience, speaking in Frankfurt. European bonds were mixed. The pound pared some of its earlier gains after comments from Brexit Secretary David Davis signaling a continued stand-off in negotiations with the European Union.

In Asia, the Nikkei 225 took its time to catch up to the WSJ report that US Special Counsel Mueller has issued a Subpoena for Russia-related documents from Trump campaign officials, although reports pointing to North Korea conducting ‘aggressive’ work on the construction of a ballistic missile submarine helped the selloff. The Japanese blue-chip index rose as much as 1.8% in early dealing, but the broad-based dollar retreat led to the index unwinding the bulk of its gains; the index finished the session up 0.2% as the yen jumped to the strongest in four-weeks. Australia’s ASX 200 added 0.2% with IT, healthcare and telecoms leading the way, as utilities lagged. Mainland Chinese stocks fell, with the Shanghai Comp down circa 0.5% as the PBoC’s reversel in liquidity injections (overnight net drain of 10bn yuan) did little to boost risk appetite, as Kweichou Moutai (viewed as a bellwether among Chinese blue chips) fell sharply. This left the index facing its biggest weekly loss in 3 months, while the Hang Seng rallied with IT leading the way higher. Indian stocks and the currency advanced after Moody’s Investors Service raised the nation’s credit rating.

The dollar was pressured even as tax reform moved a step forward given Trump-Russia probe came back into focus. Two-year Treasury yield hit a fresh high and bonds slipped. The euro stayed on course to its best week in two months as Draghi remains bullish on prospects of higher wages; the kiwi hit its lowest level since June 2016.

Meanwhile, the U.S. Treasury yield curve remained on investors’ radar, reaching its flattest levels in a decade, reflecting a belief that the Federal Reserve will continue to raise interest rates.

The U.S. House of Representatives passed a tax overhaul expected to boost share prices if it becomes law. The legislative battle now shifts to the Senate. As Bloomberg notes, as “Washington took one step closer to tax reform and China’s central bank injected the most cash since January into its financial system this week, investors have been trying to decide if resilient global growth and strong earnings forecasts warrant sticking it out in equities. Lofty valuations contributed to fund managers paring back some exposure after global shares reached record highs earlier this month.”

As earnings season drew to a close with 90 percent of U.S. and European companies having reported, analysts said results were supportive but weaker than the previous quarters. “While they look good overall, the strong momentum apparent since Q1 is now fading,” said Societe Generale analysts, adding that consensus earnings estimates are no longer being raised for U.S. or euro zone stocks.

As also reported on Thursday, Fed’s Williams suggested that central banks should consider unconventional policy tools for use in the future, including higher inflation targets and income targeting. Williams also suggested that negative rates need to be on list of potential tools if the US enters a recession, even as he said that a December hike, followed by 3 hikes in 2018 is perfectly reasonable. “What really matters is gradual normalisation not timing, should raise rates to around 2.5% in the next couple of years” he said adding that “Low inflation in a way is lucky as it allows strong growth, however, if it does not pick up over the next few years he will re-think the rate path.”

Oil prices were on track for weekly losses, slipping from two-year highs hit last week on signs that U.S. supply is rising and could potentially undermine OPEC’s efforts to tighten the market. U.S. light crude stood at $55.53 a barrel, up 0.7 percent on the day but still within its trading range in the past couple of days. It was down 2.1 percent on the week. Brent futures hit a two-week low of $61.08 a barrel but last stood 0.3 percent higher at $61.53. It was down 3.1 percent for the week.

Economic data today includes housing starts, building permits.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,583.25
  • STOXX Europe 600 down 0.2% to 384.06
  • MSCI Asia up 0.4% to 170.15
  • MSCI Asia ex Japan up 0.5% to 558.90
  • Nikkei up 0.2% to 22,396.80
  • Topix up 0.1% to 1,763.76
  • Hang Seng Index up 0.6% to 29,199.04
  • Shanghai Composite down 0.5% to 3,382.91
  • Sensex up 0.8% to 33,377.55
  • Australia S&P/ASX 200 up 0.2% to 5,957.25
  • Kospi down 0.03% to 2,533.99
  • German 10Y yield rose 1.1 bps to 0.387%
  • Euro up 0.2% to $1.1795
  • Brent Futures up 0.7% to $61.78/bbl
  • Italian 10Y yield rose 0.2 bps to 1.572%
  • Spanish 10Y yield rose 0.6 bps to 1.548%
  • Brent Futures up 0.7% to $61.78/bbl
  • Gold spot up 0.3% to $1,282.59
  • U.S. Dollar Index down 0.3% to 93.69

Top Overnight News

  • House Republicans pass tax bill, while Senate Finance Committee approves different version
  • Special Counsel Robert Mueller is said to have served President Donald Trump’s election campaign a subpoena in mid-October seeking documents related to Russia contacts
  • ECB President Mario Draghi said he was confident for wage growth in the euro area
  • While U.K. Brexit Secretary David Davis said there would be some clarity on the Britain’s divorce bill with the European Union in a “a few more weeks,” there are signs that talks with EU leaders are in a new stand-off
  • Japanese PM Shinzo Abe says he will push through initiatives to boost productivity and compile a new economic policy package next month
  • Canada is open to a Mexican proposal to review the North American Free Trade Agreement every five years instead of ending the deal automatically if not renegotiated, which the U.S. had demanded, Reuters reports, citing two unidentified government sources
  • Senate Panel Approves Tax Plan as GOP Leaders Gird for Battle
  • Murdoch Has His Pick of Suitors as He Ponders Fox’s Fate; Sky Rises Most Since June on Interest From Comcast, Verizon
  • Chinese Stocks Tumble as State Media Warning Triggers Selloff
  • India’s First Moody’s Upgrade in 14 Years Bets on Reforms
  • Draghi Says Confidence on Inflation Will Help Drive Wage Gains
  • China Issues Draft Rules to Curb Asset Management Product Risks
  • Bitcoin Flirts With Record $8,000 High, Leaving Sell-Off Behind
  • PDVSA Looks Like a ‘Zero’ to Man Who Ran Elliott’s Argentina Bet
  • Manafort Spent Millions on Home Updates But Numbers Don’t Add Up
  • Tesla Seals Order From Michigan Grocery Chain for Semi Trucks
  • Luxoft Holding Second Quarter Adjusted EPS Beats Estimates
  • JPMorgan’s Gu Sees ‘Very Robust’ Pipeline for Hong Kong IPOs

In Asia, the Nikkei 225 took its time to catch up to a report suggesting that US Special Counsel Mueller has issued a Subpoena for Russia-related documents from Trump campaign officials, although reports pointing to North Korea conducting ‘aggressive’ work on the construction of a ballistic missile submarine probably helped the selloff. The Japanese blue-chip index rose as much as 1.8% in early dealing, but the broad-based dollar retreat led to the index unwinding the bulk of its gains; the index finished the session up 0.2%. Australia’s ASX 200 added 0.2% with IT, healthcare and telecoms leading the way, as utilities lagged. Mainland Chinese stocks fell, with the Shanghai Comp down circa 0.4% as the PBoC’s injections have done little to underscore risk appetite, as Kweichou Moutai (viewed as a bellwether among Chinese blue chips) fell sharply. This left the index facing its biggest weekly loss in 3 months, while  the Hang Seng rallied with IT leading the way higher. The PBoC injected a net CNY 810bln this week, against a net drain of CNY 230bln last week. Japanese PM Abe promised to rid the country of deflation once and for all. He pledged to use all policy tools, including tax reforms and deregulation, to push up wages in order to put an end to the country’s persistent deflation he also noted that he wants to increase pressure on North Korea along with the international community. Japanese Finance Minister Aso stated that Japan is to continue to firmly escape deflation. South Korea’s FX authority warned that the pace of the KRW’s gains has been fast. A BoK official warned that the KRW has appreciated fast in a short time, and reiterates that FX authorities are monitoring the situation. Moody’s raised India’s sovereign rating to Baa2 from Baa3, outlook to stable from positive.

Top Asian News

  • India Rating Raised by Moody’s as Reforms Boost Growth Potential
  • China to Rein Risks in Asset Management Industry
  • China Warning Wipes $6 Billion From Stock Loved by Goldman
  • Erdogan Says Turkey Has Withdrawn Troops From NATO Exercise
  • China Stocks Cap Worst Week Since August as Moutai Battered

European bourses trading modestly lower this morning, with downbeat earnings weighing sentiment, while the spill-over from a soft Asian session has dented risk in Europe. Vivendi shares had been lower as much as 2% after a weak earnings update. FTSE 100 slipping slight amid the strength in GBP, which is back above 1.32 against the greenback. Comments from ECB’s Draghi have sparked some additional movement, as while largely sticking to the post-October 26 policy meeting presser he appeared more confident about the growth and inflation outlook (economic activity more self-propelling, underlying inflation to converge with headline etc). Hence, a decline in Bunds below parity to a 162.50 low, but again not yet posing a real threat to more substantial downside targets/supports. Market contacts suggest that 162.48 needs to be breached from an intraday chart perspective to bring Thursday’s 162.38 Eurex base into contention, and recall there are more/bigger stops anticipated below 162.36. On the upside, assuming 162.48 holds, yesterday’s 162.82 session high is the first proper line of resistance. Gilts have also retreated into negative territory alongside Bunds and USTs, to 124.45 vs 124.77 at best and their 124.72 previous settlement.

Top European News

  • We’ll Wait for U.K. Brexit Concessions, EU Leaders Tell May
  • From EON to Fortum: How to Save Nasdaq’s Fading Power Market
  • Carige Talks With Underwriters Continue as Deadline Looms
  • Elior Plunges Most on Record as Hurricane Irma Wrecks Party
  • Norway Idea to Exit Oil Stocks Is ‘Shot Heard Around the World’

In FX, the USD is down again, but off worst levels seen so far this week as the Index holds within a 93.500-93.900 broad range. Some respite for Dollar from progress on the tax reform bill, but another Russian-related probe into Trump’s election campaign has capped the upside. The Euro was underpinned by upbeat comments from ECB President Draghi, and holding close to 1.1800 vs the Usd. Hefty option expiries still in play from 1.1790-1.1800 through 1.18250 and up to 1.1840-50. The Yen regaining a safe-haven bid amid the latest US political challenge against the President, with Usd/Jpy down to new multi-week
lows sub-112.50. AUD/NZD is the biggest G10 losers on broad risk-off sentiment and the recovering Greenback, with Aud/Usd back below 0.7600 and Nzd/Usd even weaker under the 0.6800 handle. Note, cross flow also weakening the Kiwi as Aud/Nzd trades back at 1.1100+ levels.

In commodities, Brent and WTI crude futures trading higher by 0.4% and 1.3% respectively, the latter making a break above yesterday’s at USD 55.59, however has met resistance at the USD 56 handle. Iraq/Kurd oil flow to Ceyhan rises to 254k bpd, according to Port Agent

Looking at the day ahead, a slightly quieter end to the week although the ECB’s Draghi is due to give a keynote address on “Europe into a new era – how to seize the opportunities”. The Bundesbank’s Weidmann is also slated to speak while the Fed’s Williams speaks in the evening. US housing starts for October and the Kansas City Fed’s manufacturing activity index for November are the data highlights.

US Event Calendar

  • 8:30am: Housing Starts, est. 1.19m, prior 1.13m; MoM, est. 5.59%, prior -4.7%
  • 8:30am: Building Permits, est. 1.25m, prior 1.22m; MoM, est. 2.04%, prior -4.5%
  • 10am: MBA Mortgage Foreclosures, prior 1.29%; Mortgage Delinquencies, prior 4.24%
  • 11am: Kansas City Fed Manf. Activity, est. 20.5, prior 23

DB’s Jim Reid concludes the overnight wrap

Maybe the S&P 500 will be the new hard currency of the world as nothing seems to break it at the moment. After a very nervous last week (longer in HY and EM) for markets, the S&P 500 closed +0.82% last night (best day since September 11th) and for all the recent fury and angst is only 0.34% off its’ all-time closing high. The Nasdaq gained 1.30% to a fresh all time high and the Stoxx 600 was also up for the first time in eight days. The positive reaction seems to have started in Asia yesterday, in part as commodity prices stabilised somewhat and news that China’s PBoC injected cash with the largest reverse repo operation since January. Then US markets got an additional boost from Cisco guiding to its first revenue gain in eight quarters and Wal-Mart posting its strongest US sales in more than eight years. There was also a little sentiment boost from the House passing its tax bill.

This morning in Asia, markets are strengthening further. The Nikkei (+0.11%), Hang Seng (+0.78%) and Kospi (+0.28%) are all modestly up while the Shanghai Comp. is down 0.55% as we type. Moody’s upgraded India’s sovereign bond rating for the first time since 2004. It’s one notch higher to Baa2/Stable (also one notch higher than S&P’s BBB-) with the agency citing ongoing progress in economic and institutional reforms. India’s 10y bond yields is down c10bp this morning to 6.96%. Elsewhere, UST 10y has partly reversed yesterday’s moves and is trading c2bp lower.

Now back to US tax reforms, which is a small step closer to resolution. The House has voted (227-205) to pass its version of the tax reform bill despite 13 Republicans dissenting. President Trump tweeted “a big step toward fulfilling our promise to deliver historic tax cuts…by the end of the year”. Notably, the more challenging task may now begin in terms of passing the Senate’s version where fiscal constraints are tighter and the Republicans only have 52 of the 100 seats in the Chamber. Overnight, the Senate Finance Committee voted to approve its revised tax package, so a full chamber vote could come as early as the  week after Thanksgiving. If passed, the two versions of the tax bill will need to be somehow reconciled. Our US economist believes there is a decent chance that some version of tax reform can be achieved, but this is likely to be a Q1 event with potential stumbling blocks along the way.

Turning to the various Brexit headlines, PM May flew out last night to Sweden for an informal summit with European leaders seeking to kick start the stalled Brexit talks. She is expected to meet with the Swedish Premier and Irish counterpart before meeting with EU President Tusk on Friday. Following on, the Brexit Secretary Davis noted that we have to “wait a few more weeks” for clarity on how much UK is willing to pay in the divorce settlement. Elsewhere, Goldman Sachs CEO Blankfein tweeted “many (fellow business leaders) wish for a confirming vote on (Brexit)…so much at stake, why not make sure consensus still there?”

Moving onto central bankers’ commentaries. In the US, the Fed’s Mester sounded reasonably balanced and remains supportive of continued gradual policy tightening. She noted “anecdotal feedback from business contacts suggest they are increasing wages”, but it’s going to be hard to see strong wage growth because productivity growth is low. Overall, she sees “good reasons” that inflation will rise back to 2% goal, but “it’s going to take a little longer…”

The Fed’s Williams noted one more rate hike this year and three more in 2018 remains a “reasonable guess” subject to incoming data. Finally, the Fed’s Kaplan  reiterated the Fed would continue to make progress towards achieving its 2% inflation target, but noted that the neutral fed funds rate is “not that far away”.

In the UK, BOE Governor Carney reiterated that interest rates would probably rise “a couple of times over the next few years” if the economy evolved in line with the Bank’s projections, but also cautioned that the fundamental economic impacts of Brexit will only be “known over a very long period of time”. That said, he noted the BOE will remain nimble and support the economy no matter what the result of the Brexit negotiations will be. Elsewhere, Chancellor Hammond has confirmed that the Treasury does not plan to change the inflation gauge that the BOE targets from CPI to CPIH – which includes owner occupied housing costs and is the new preferred price measure by the Office for National Statistics.

Now recapping other markets performance yesterday. Within the S&P, only the energy and utilities sector were modestly in the red (-0.58%), partly weighed down by Norway’s sovereign wealth fund plans to sell c$40bln of energy related stocks to make it less vulnerable to the sector. Elsewhere, gains were led by telco, consumer staples and tech stocks. European markets were all higher, with the DAX and CAC up c0.6% while the FTSE 100 was the relative underperformer at +0.19%. The VIX index dropped 10.4% to 11.76.

Over in government bonds, UST 10y yields rose 5.3bp following the House’s approval of the tax plans and a solid beat for industrial production, while Gilts also rose 2.3bp, in part due to slightly stronger retail sales figures. Other core bond yields were little changed (10y Bunds flat, OATs -0.4bp), while Italian yields marginally underperformed (+0.5bp), partly reflecting that Banca Carige has failed to get banks to underwrite its planned share sale – making a bail in more likely, as well as recent polls (eg: Ipsos) showing the 5SM party taking a modest lead versus peers. Elsewhere, some of the recent pressure in the HY space appears to be reversing with the Crossover index 9.2bp tighter.

Key currencies were little changed, with the US dollar index up 0.13% while Sterling gained 0.18% and Euro fell 0.18%. In commodities, WTI oil dipped 0.34% yesterday but is trading marginally higher this morning after Saudi Arabia reaffirmed its willingness to extend oil cuts at the November 30 OPEC meeting. Elsewhere, precious metals were slightly higher (Gold +0.03%; Silver +0.54%) while other base metals continue to softened, although losses are moderating (Copper -0.17%; Zinc -0.84%; Aluminium -0.35%).

Away from the markets, our US economists have published their latest outlook for the US economy. They note the US economy is on good footing for continued above-trend growth in 2018 and beyond. Overall, they believe private sector fundamentals are broadly sound, the labour market has more than achieved full employment and financial conditions are highly supportive of growth. On real GDP growth, their forecast for 2018 is unchanged at 2.3%, but 2019 is up a tenth to 2.1% while growth in 2020 is expected to slow to 1.5% as monetary policy tightening gains traction. The Unemployment rate is expected to fall to 3.5% by early 2019, so although inflation should remain low through year-end, our team’s medium-term view that core inflation should normalise is intact. Hence, in terms of rates outlook, they still expect the next rate increase in December, followed by three hikes in 2018 and four more in 2019. Elsewhere, tax reform is a wild card, though it faces significant political challenges. Conversely, potential disruptions to trade policy would be a negative development. For more detail, refer to their note.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the October IP was above expectations at 0.9% mom (vs. 0.5%) and 2.9% yoy – the highest since January 2015, in part as the post storm recovery efforts gets underway. Aggregate capacity utilization was also beat at 77% (vs. 76.3% expected) – highest since April 2015 and the NAHB housing market index was also above at 70 (vs. 67) – highest since March. Elsewhere, the November Philly Fed index was slightly below expectations but still solid at 22.7 (vs. 24.6 expected), with both the new orders and employment indices above 20. Finally, the weekly initial jobless claims was slightly higher (249k vs. 235k expected), perhaps impacted by the delayed filings following the storms and the Veteran’s day holiday, while continuing claims fell to a new 44 year low (1,860k vs. 1,900k expected).

In the UK, core retail sales (ex-auto fuel) for October slightly beat expectations, at 0.1% mom (vs. flat expected) and -0.3% yoy (vs. -0.4% expected). In the Eurozone, the final reading for October CPI was unrevised at 0.1% mom and 1.4% yoy, but France’s 3Q unemployment was slightly higher than expected at 9.7% (vs. 9.5%).

Looking at the day ahead, a slightly quieter end to the week although the ECB’s Draghi is due to give a keynote address on “Europe into a new era – how to seize the opportunities”. The Bundesbank’s Weidmann is also slated to speak while the Fed’s Williams speaks in the evening. US housing starts for October and the Kansas City Fed’s manufacturing activity index for November are the data highlights.

http://WarMachines.com

China Gold Import Jan-Sep 777t. Who’s Supplying?

Submitted by Koos Jansen, BullionStar.com.

While the gold price is slowly crawling upward in the shadow of the current cryptocurrency boom, China continues to import huge tonnages of yellow metal. As usual, Chinese investors bought on the price dips in the past quarters, steadfastly accumulating for a rainy day. The Chinese appear to be price sensitive regarding gold, as was mentioned in the most recent World Gold Council Demand Trends report, and can also be observed by Shanghai Gold Exchange (SGE) premiums – going up when the gold price goes down – and by withdrawals from the vaults of the SGE which are often increasing when the price declines. Net inflow into China accounted for an estimated 777 tonnes in the first three quarters of 2017, annualized that’s 1,036 tonnes.

Exhibit 1.

Demonstrated in the chart above Chinese gold imports and known gold demand by the Rest Of the World (ROW) add up to thousands of tonnes more than what the ROW produces from its mines. One might wonder where Chinese gold imports come from, which is why I thought it would be interesting to analyse as detailed as possible who’s supplying China. Is one country, or only the West, supplying China? Although absolute facts are difficult to cement, my conclusion is that China is supplied by a wide variety of countries on several continents this year.

China doesn’t publish its gold import figures so we have to measure exports from other countries to the Middle Kingdom for this exercise. This year the primary hubs that exported to China have been Switzerland and Hong Kong. The Swiss net exported 18 tonnes to China in September, which brings the year to date total to 221 tonnes, down 4 percent year on year. Because Switzerland is the global refining centre, a storage centre and trading hub I’ve plotted a chart showing its gross imports and exports per region.

Exhibit 2.

I’ve included Asian countries with significant mining output that are net exporters at all times, like Uzbekistan, in ROW to get the best perspective of above ground stock movement.[/caption] In the above chart we can see that Switzerland was a net exporter to China in all months, but in most months Switzerland in total was a net importer, displayed by the red line; for each of those months Switzerland itself was not the supplier to China.

Combined with data from Eurostat (on the UK’s total net flow) and USGS (on the US’ total net flow) the Swiss data tells me that gold moving from Switzerland to China had several sources this year. In January, for example, it was the UK that was supplying – being a net exporter in total and a large exporter to Switzerland. I must add that in theory little gold from the UK arrived in China via Switzerland, as the numbers don’t say which bar from whom was sent to who. But we can say “the UK made it possible China bought an X amount of gold in the open market at the prevailing price that month”. The same approach suggests that in June it was the US and Switzerland (Switzerland being a net exporter that month), and in September it was Asia (including the Middle-East) supplying gold to customers of Swiss refineries at the prevailing prices. There was not one source of above ground stock that exported to China (via Switzerland) as far as I can see.

The Hong Kong Census And Statistics Department (HKCSD) has recently published data indicating China absorbed 30 tonnes from the Special Administrative Region in September, down 8 percent relative to August and down 44 percent compared to September last year. A decline was expected because China has stimulated direct gold imports circumventing Hong Kong since 2014. Nevertheless, Hong Kong net exported 515 tonnes to the mainland through the first three quarters of 2017 (down 15 percent year on year).

Exhibit 3.

Hong Kong is a gold trading hub too, though. If Hong Kong is a net exporter to China, the actual source can be any country. Have a look at the next chart that shows the net flows through Hong Kong per region: the West, East and ROW (1). I’ve also added the net flow with China.

Exhibit 4. I’ve included Asian countries with significant mining output that are net exporters at all times, like Uzbekistan, in ROW to get the best perspective of above ground stock movement. To be clear, the blue line + the grey line + the yellow line = the red line. All lines are “net import”, calculated as import minus export. While Switzerland is included in the West, gold from all over the world can flow via Switzerland to Hong Kong.

First observe the red line, “Hong Kong total net flow”. We can see that in 2013 Hong Kong became a massive net importer until about half way through 2015. The major suppliers to Hong Kong during this period were Switzerland and the UK, next to the ROW.  I’m not aware of what type of entities were accumulating in Hong Kong at the time. The largest net importer from Hong Kong was China (included in the East).

After 2015 supply from the West (through Hong Kong) has slowly dried up while demand by China continued, shown by the blue line coming to zero and the yellow bars remaining to trend sub-zero. And thus Hong Kong commenced net exporting gold itself as we can see the red line in the chart falling far below zero. Apparently, since 2015 Hong Kong is a net exporter.

How much gold is left in Hong Kong? Unfortunately, online data from the HKCSD goes back only to 2002. The HKCSD does keep physical records from its international merchandise trade statistics from before 2002 but strangely “gold export” from 1972 until 1998 is omitted in these books (2).

Exhibit 5.

As you can see in this last chart Hong Kong has suffered net exports from 2002 until 2008 and after 2015. It’s possible there is still bullion in Hong Kong if it had been accumulated before 1998, but since 1998 Hong Kong already “net lost” 727 tonnes. Another possibility is that refineries in Hong Kong import a lot of scrap gold, which is nearly impossible to track in customs reports and is not included in any of my data, that is being refined into bullion and exported. In this case Hong Kong is not a net exporter, or less of a net exporter. We’ll see in coming months or years if Hong Kong can continue net exporting bullion.

In exhibit 4 we can see a vague correlation between “Hong Kong net export to the China” and “Hong Kong’s total net export” for 2016 and 2017. It looks like Hong Kong is feeding its big brother. Or is it?

There is a gold kilobar futures contract listed on the COMEX that is physically deliverable in Hong Kong. The trading volume of this contract is neglectable, and so is physical delivery, but remarkably the designated vault (Brinks) throughput is sky-high. When looking at a chart of kilobars received and withdrawn at the Brinks vault in Hong Kong, supplemented by cross-border gold trade, there is a pattern revealed: the amount of kilobars received and withdrawn, and Hong Kong’s gold total import and re-export to China are correlated.

Exhibit 6.

The chart suggests that Hong Kong is mainly supplying China from its imports (and any gold supplying other countries than China was stored in Hong Kong in previous years or was sourced from scrap). As the imports are correlated to kilobars received in the Brinks vault and kilobars withdrawn are correlated to re-exports to China, both flows seem to be one and the same trade. I don’t know for sure, but I think this is largely true. The next question is from what countries does Hong Kong import bullion to dispatch to China? From countries all over the world. Have a look.

Exhibit 7.

The composition is quite diverse. From the first until the the third quarter of this year gold came in from Switzerland, South-Africa, the US, Australia and the Philippines, inter alia.

Next to gold flowing through Switzerland and Hong Kong to China, countries that supplied gold directly to China this year have been Australia at 20 tonnes (3), the US at 14 tonnes, Japan at 3 tonnes and Canada at 4 tonnes. The UK has practically exported zero gold directly to China this year. In total Hong Kong (515 tonnes), Switzerland (221 tonnes), Australia (20 tonnes), the US (14 tonnes), Japan (3 tonnes) and Canada (4 tonnes) net exported 777 tonnes to China mainland in the first three quarters of 2017 (4).

Conclusion

It must be mentioned that in theory gold import by China arrives in the Shanghai Free Trade Zone (which is not the domestic market) where the Shanghai International Gold Exchange (SGEI) operates. As most of you know the SGEI can serve foreign customers that can import gold traded on the SGEI, for example into India. Hence, it’s possible not all gold imported into China mainland arrives in the domestic market but ends up in the Shanghai Free Trade Zone or abroad. Global cross-border trade statistics by COMTRADE, however, show that barely any country is importing from China.

Until new evidence shows up my best guess is that China net imported 777 tonnes in the first nine months of 2017, sourced from all corners of the world: the UK, South-Africa, Australia, Switzerland, the US, Middle-East and Philippines. It seems Chinese banks are active all over the world looking to buy gold on the dips, snapping up physical metal when the time is right.

Chinese imports add to China's domestic mining output. The China Gold Association disclosed on November 1 that mine production accounted for 313 tonnes, down 10 % compared to last year. Nearly all this gold (313 + 777) is sold through the SGE. Withdrawals from the vaults of the SGE accounted for 1,505 tonnes over this period, implying 415 tonnes (1,505 – 313 – 777) was supplied by scrap and disinvestment (or partially recycled through the SGE system).

Since all non-monetary gold imported and mine production ends up in the private sector, my estimate for total gold owned by the Chinese people now stands at 16,575 tonnes. Added by a more speculative estimate of 4,000 tonnes held by the PBOC makes 20,575 tonnes.

Exhibit 8.

If you like to learn more about the Chinese gold market please read The Chinese Gold Market Essentials or visit the BullionStar University.

Footnotes

1) Hat tip to Nick Laird from Goldchartsrus.com for providing the HKCSD data from January 2002 until September 2017.

2) Huge hat tip to Winson Chik that went to the HKCSD office in Hong Kong for us to obtain the data from before 2002!

Exhibit 9. Courtesy Winson Chik.

3) The Australian Bureau of Statistics (ABS) amended its gold export data to China and Hong Kong until August 2016. Before that I had my own way of computing direct gold export from Australia to China – which is now obsolete. A few days ago I got confirmed by ABS they stopped amending the data as China has allowed gold import bypassing Hong Kong. ABS data on gold export to China can now be taken at face value. On November 10, 2017, ABS wrote me:

Previously ABS amended exports of gold bullion going to Hong Kong to China as at the time the ABS had been provided with information to suggest that the majority of gold exports to Hong Kong ultimately ending up in China. In 2016 a review of this methodology was undertaken, and it was determined that in recent years direct imports to the Chinese mainland have become increasingly common. by 2013-14, China eased restrictions on the direct importation of gold to ports outside of Hong Kong, and as a result users have abandoned using Hong Kong gold imports as an appropriate proxy measure for Chinese imports. The ABS implemented improvements to more accurately reflect the country of final destination of gold bullion, non-monetary (excl. unwrought forms and coins of HS 7118 and HS 9705) (AHECC 71081324) exported to Hong Kong and China in August 2016. The series were revised back to January 2012, inclusive. This impacted the country series only, as published in tables 14a and 36a-36j of International Trade in Goods and Services, Australia (cat. no. 5368.0) and detailed country statistics available on request. Total levels were not impacted, nor will there be any implications for other ABS collections. The ABS defines the country of final destination for exports as 'the last country, as far as it is known at the time of exportation, to which goods are to be delivered'. The ABS conducted a review of the country of final destination of gold bullion into China and Hong Kong. There was evidence that Hong Kong had ceased serving primarily as an intermediate shipping country of gold into China and was importing and transforming gold bullion in its own right.

4) Data from Australia and the US for September hasn’t been released yet, so the numbers disclosed are provisional.

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Rickards On Gold, Interest Rates, & Super-Cycles

Authord by James Rickards via The Daily Reckoning,

When the Fed raised interest rates last December, many believed gold would plunge. But it didn’t happen.

Gold bottomed the day after the rate hike, but then started moving higher again. 

Incidentally, the same thing happened after the Fed tightened in December 2015. Gold had one of its best quarters in 20 years in the first quarter of 2016. So it was very interesting to see gold going up despite headwinds from the Fed.

Meanwhile, gold has more than held its own this year. 

Normally when rates go up, the dollar strengthens and gold weakens. They usually move in opposite directions. So how could gold have gone up when the Fed was tightening and the dollar was strong?

That tells me that there’s more to the story, that there’s more going on behind the scenes that’s been driving the gold price higher.

It means you can’t just look at the dollar. The dollar’s an important driver of the gold price, no doubt. But so are basic fundamentals like supply and demand in the physical gold market.

I travel constantly, and I was in Shanghai meeting with the largest gold dealers in China. I was also in Switzerland not too long ago, meeting with gold refiners and gold dealers.

I’ve heard the same stories from Switzerland to Shanghai and everywhere in between, that there are physical gold shortages popping up, and that refiners are having trouble sourcing gold. Refiners have waiting lists of buyers, and they can’t find the gold they need to maintain their refining operations.

And new gold discoveries are few and far between, so demand is outstripping supply. That’s why some of the opportunities we’ve uncovered in gold miners are so attractive right now. One good find can make investors fortunes.

My point is that physical shortages have become an issue. That is an important driver of gold prices.

There’s another reason to believe that gold could be in a long-term trend right now.

To understand why, let’s first look at the long decline in gold prices from 2011 to 2015. The best explanation I’ve heard came from legendary commodities investor Jim Rogers.

He personally believes that gold will end up in the $10,000 per ounce range, which I have also predicted.

But Rogers makes the point that no commodity ever goes from a secular bottom to top without a 50% retracement along the way.

This means the 50% retracement is behind us and gold is set for new all-time highs in the years ahead.

Gold bottomed at $255 per ounce in August 1999. From there, it turned decisively higher and rose 650% until it peaked near $1,900 in September 2011.

So gold rose $1,643 per ounce from August 1999 to September 2011.

A 50% retracement of that rally would take $821 per ounce off the price, putting gold at $1,077 when the retracement finished. That’s almost exactly where gold ended up on Nov. 27, 2015 ($1,058 per ounce).

This means the 50% retracement is behind us and gold is set for new all-time highs in the years ahead.

Why should investors believe gold won’t just get slammed again?

The answer is that there’s an important distinction between the 2011–15 price action and what’s going on now.

The four-year decline exhibited a pattern called “lower highs and lower lows.” While gold rallied and fell back, each peak was lower than the one before and each valley was lower than the one before also.

Since December 2016, it appears that this bear market pattern has reversed. We now see “higher highs and higher lows” as part of an overall uptrend.

The Feb. 24, 2017, high of $1,256 per ounce was higher than the prior Jan. 23, 2017, high of $1,217 per ounce.

The May 10 low of $1,218 per ounce was higher than the prior March 14 low of $1,198 per ounce.

The Sept. 7 high of $1,353 was higher than the June 6 high of $1,296. And the Oct. 5 low of $1,271 was higher than the July 7 low of $1,212.

Of course, this new trend is less than a year old and is not deterministic. Still, it is an encouraging sign when considered alongside other bullish factors for gold.

But more importantly, gold has held its own despite higher interest rates and threats of more.

That tells me we’re seeing a flight to quality, meaning people are losing confidence in central banks all over the world. They realize the banks are out of bullets. They’ve been printing money for eight years and keeping rates close to zero or negative. But it still hasn’t worked to stimulate the economy the way they want.

So gold has been moving up in what I would consider a challenging environment of higher rates. 

The question is, where does gold go from here?

The market is currently giving close to 100% odds that the Fed will raise rates next month.

I disagree. I’m skeptical of that because of the weak inflation data. There will be one more PCE core data release before the Dec. 13 meeting. That release is due out on Nov. 30.

If the number is hot, say, 1.6% or higher, that will validate Yellen’s view that the inflation weakness was “transitory” and will justify the Fed in raising rates in December.

On the other hand, if that number is weak, say, 1.3% or less, there’s a good chance the Fed will not raise rates in December. In that case, investors should expect a swift and violent reversal of recent trends.

Markets have priced a strong dollar and weaker gold and bond prices based on the expectation of a rate hike in December. If that rate hike doesn’t happen because of weak inflation data, look for sharp rallies in bonds and gold.

Now, the last time gold sold off dramatically was on election night, when Stan Druckenmiller, a famous gold investor, sold all his gold. It’s only natural that when someone dumps the amount of gold he deals in, the price will go down.

That move reflected a change in sentiment.

What Stan said at the time was very interesting. He said, “All the reasons that I own gold in the first place have gone away because Trump was elected president.”

In other words, he was buying into the story that Hillary Clinton would be bad for the economy but Donald Trump’s policies would be beneficial. If we were going to have strong economic growth with a Trump presidency, maybe you didn’t need gold for protection. So he sold his gold and bought stocks on the assumption that the economy would grow under Trump.

But earlier this year, Stan has said he’s buying gold again. What that means is that people are finally reconsidering the reflation trade. Tax reform is still a big question mark. And when’s the last time you heard a word about infrastructure spending?

Investors will once again flock into gold once reality sets in. Mix in rising geopolitical tensions in Asia and the Middle East, and gold’s future looks bright.

http://WarMachines.com

Comparing Digital Metals

 

Comparing Digital Metals

Written by Craig Hemke, TF Metals Report and Sprott Money News 

 

 

Comparing Digital Metals - Craig Hemke

 

With total Comex silver open interest near the 200,000 contract level, we thought it would be enlightening to once again discuss the total volume of physical mine supply versus digital metal supply on this futures exchange.

 

We’ve written on countless occasions about Comex alchemy and the fraud of digital metal. As a refresher, you might review both of these links before we continue:

 


https://www.sprottmoney.com/Blog/42-years-of-fract…


https://www.tfmetalsreport.com/blog/8252/econ-101-…

 

Today, we just thought we should remind you of the scale and scope of the fraud, particularly as it relates to silver. Again, under this current fractional reserve and derivative pricing scheme, price is “discovered” through the trading of derivative contracts, the supply of which is controlled by The Bullion Banks. These same banks are then responsible for managing and delivering physical metal at the digitally-derived price.

 

Currently, the total open interest (supply of contracts) in Comex silver is 199,899. For the sake of simplicity, let’s round up and call it 200,000. At 5,000 ounces per contract, this represents 1,000,000,000 ounces of digital silver. That’s a lot…especially when you consider that Keith Neumeyer told us last week that the world is on pace to mine about 800,000,000 ounces in 2017.

 

If we divide 1,000,000,000 digital ounces by 800,000,000 ounces of annual production, we find that total Comex silver open interest represents 125% of global mine supply. Is this a lot? Is this extreme? Is this evidence of a gross distortion of the price discovery process? Perhaps we should consider some of the other “metals” traded on Comex for perspective.

 

Let’s start with Comex gold. How does Comex open interest compare? Well, the world is projected to mine about 2,800 metric tonnes this year or about 90,000,000 ounces of gold. With each Comex contract representing 100 ounces, the current total OI of 533,054 contracts equals 53,305,400 ounces or about 59% of total mine supply.

 

And what about platinum? A Comex contract represents 50 ounces of platinum and there are currently 78,974 of them floating around. This represents 3,948,700 ounces of digital platinum. And how much platinum does the world mine every year? About 180 metric tonnes or roughly 5.8 million ounces. So here the Comex open interest equates to about 69% of mine supply.

 

Lastly, and just for fun, you might consider that total Comex copper open interest is 283,153 contracts. Each contract represents 25,000 pounds of copper. This yields a total of just over 7 billion pounds of copper. That may sound like a lot until you consider that the world produces about 40 billion pounds annually. So, the Comex copper open interest represents only 18% of total mine supply.

 

Do you see a little bit of disparity here??? What would be the paper price of silver if open interest was cut in half to the level of gold and platinum? What would be the paper price if OI was reduced by 85% to the relative level of copper? And you wonder why we call the Bankers “criminals” and “thieves”, and why we call the Comex a “den of vipers” while using the terms “fraud” “scam” and “sham”.

 

One day this will all collapse as true physical demand simply overwhelms The Bankers and their fraudulent paper derivative pricing scheme. Recognizing this certainty, your best strategy continues to be the gradual accumulation of real, physical metal. When the demise of The Bullion Bankers finally comes, the
price of silver derived exclusively through the trading of actual metal will certainly not be $17 per ounce.

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

Comparing Digital Metals

Written by Craig Hemke, TF Metals Report and Sprott Money News 

 

http://WarMachines.com

Futures Jump, Global Stocks Rebound From Longest Losing Streak Of The Year

After five consecutive daily losses on the MSCI world stock index and seven straight falls in Europe, there was finally a bounce, as investors returned to global equity markets in an optimistic mood on Thursday, sending US futures higher after several days of losses as global stocks rebounded following a Chinese commodity-driven rout. 

The House is poised to vote, and pass, on tax legislation although what happens in the Senate remains unclear. European shares rebounded for the first time in eight sessions, following Asian stocks higher as the global risk-off mood eased. The euro, Swiss franc and yen all weakened as the dollar edged higher. “After five or six days of steady selling you have got people coming back in looking for bargains,” said CMC Markets' Michael Hewson. “I think it’s temporary though. We haven’t had a significant sell off this year and the fact of the matter is that equity markets have done so much better than anyone dared to envisage.”

As Bloomberg echoes, "investors seem to be regaining their appetite for risk after several days of global declines in stocks and high-yield credit that had many questioning whether the selloff could become a rout."

Still, investor concern over the progress of a massive U.S. tax reform plan showed no sign of abating as two Republican lawmakers on Wednesday criticized the Senate’s latest proposal. U.S. President Donald Trump hit back, tweeting that “Tax cuts are getting close!”

“If we look at what the markets are focusing on, it’s still very much the tax cut debates in the U.S., and how much progress there’s going to be on this front,” Barclays' Mitul Kotecha told Reuters.

Indices in Tokyo, Shanghai and Hong Kong and Seoul all rallied overnight, while London, Frankfurt and Paris started 0.3-0.4% higher as cyclical stocks which had driven the sell-off made a comeback. In Japan the Topix index ended its longest losing streak in a year, rising 1% with technology stocks providing the biggest boost, and the Nikkei 225 advances 1.5%. The ASX (+0.2%) also managed to shake off its early losses, closing higher with the energy sector outperforming as consumer staples and utilities weighed. Chinese stocks edged lower despite a massive cash injection by the PBOC, while the Hang Seng moved higher. Hong Kong stocks rebounded from their worst day in four weeks, as insurers led by Ping An Insurance Group Co. jumped on optimism that rising bond yields will boost investment income. Tencent Holdings climbed after posting its fastest revenue growth in seven years.

China’s sovereign bonds finally rebounded, advancing after the central bank boosted cash injections by the most in 10 months, fueling speculation that the authorities are looking to stabilize sentiment after a debt selloff. Having flirted with 4% in recent days, the yield on 10-year government notes dropped 3 basis points to 3.95%; the 5-year yield fell 1 basis point to 3.95%. The 10-year yield surpassed 4% this week for the first time since 2014. The People’s Bank of China added a net 310 billion yuan ($47 billion) through reverse-repurchase agreements on Thursday, bringing this week’s open-market operation additions to 820 billion yuan, also the most since January.

European stocks bounce back from a seven-day rout – the longest losing streak of the year – that had erased almost 400 billion euros ($471 billion) from the value of the region’s benchmark. The Stoxx Europe 600 Index adds 0.7%, following gains in Asia and climbing from a two-month low. All national benchmarks in the region are in the green, except those in Italy and Greece. Most industry groups also rise, with automakers rebounding from an eight-day slump on data showing European car sales grew in October. Financial services firms and builders were among the biggest gainers in the broad advance of the Stoxx Europe 600 Index.

There was some relief too that oil prices had pulled out of what had been a near 5 percent drop and that upbeat U.S. data on Wednesday had helped the dollar halt the euro's sharp recent rise.

In currencies, the pound fluctuated as Brexit rhetoric rumbled on, and data showed U.K. retail sales barely rose in October. Concerns about Brexit continue to mount: an article in 'The Sun' newspaper, stated that UK PM May, could increase her divorce bill offer to the EU in December; deal would add GBP 20bln to the GBP 18bln said to already be on offer. Source reports indicate that EU is said to reject UK bid for `bespoke' trade deal, according to Politico. BoE's Carney states that the Bank will do whatever they can to support the UK economy during the Brexit transition period. Chancellor Hammond said to stick to fiscal rules and resist demands for spending surge in upcoming UK budget. Michael Gove is reportedly facing a Conservative party backlash as he is accused of using the cabinet to audition for UK Chancellor

The dollar index was slightly higher on the day at 93.828 having hit four- and five-week lows against the yen and euro. The euro was down around 14 ticks at $1.1760 retreating from a one-month top of $1.1860 on Wednesday. Havens underperformed on Thursday, with gold trading little changed, and the yen and Swiss franc among the worst-performing major currencies. The Swiss franc decreased 0.3 percent to $0.9918, the largest dip in more than two weeks.

Commodities largely stabilized as China’s central bank boosted the supply of cash in the system by the most since January, though oil eventually reversed a gain. Gold edged 0.1% lower to $1,277.29 an ounce. It reached $1,289.09 overnight, its highest since Oct. 20. Oil prices gained despite pressure after the U.S. government reported an unexpected increase in crude and gasoline stockpiles. They had lost ground to this week’s International Energy Agency (IEA) outlook for slower growth in global crude demand.

European government bonds took their cue from the U.S. benchmark, turning lower as the yield on 10-year Treasuries increased. Bond markets saw a broad rise in yields after mostly upbeat U.S. economic news on Wednesday had added to expectations the Federal Reserve will hike interest rates again next month as well as multiple times next year. Two-year Treasury yields US2YT=RR crept to fresh nine-year peaks in European trading, though significantly the U.S. yield curve remained at its flattest in a decade. European yields nudged higher too but the standout there was a fall in the premium investors demand to hold French debt over German peers to its lowest in over two years, almost to record lows.

Wal-Mart, Viacom, Best Buy and Applied Materials are among companies due to release results. Economic data include initial jobless claims, Philadelphia Fed Business Outlook.

Market Snapshot

  • S&P 500 futures up 0.4% to 2,574
  • STOXX Europe 600 up 0.7% to 384.61
  • MSCI Asia up 0.8% to 169.14
  • MSCI Asia ex Japan up 0.7% to 555.93
  • Nikkei up 1.5% to 22,351.12
  • Topix up 1% to 1,761.71
  • Hang Seng Index up 0.6% to 29,018.76
  • Shanghai Composite down 0.1% to 3,399.25
  • Sensex up 1% to 33,095.23
  • Australia S&P/ASX 200 up 0.2% to 5,943.51
  • Kospi up 0.7% to 2,534.79
  • German 10Y yield rose 1.3 bps to 0.389%
  • Euro down 0.1% to $1.1779
  • Brent Futures down 0.03% to $61.85/bbl
  • Italian 10Y yield rose 0.7 bps to 1.57%
  • Spanish 10Y yield rose 1.1 bps to 1.561%
  • Brent Futures down 0.03% to $61.85/bbl
  • Gold spot down 0.02% to $1,277.91
  • U.S. Dollar Index up 0.1% to 93.91

Top Overnight News

  • After a month of discussions, German Chancellor Angela Merkel faces a self-imposed end-of-week deadline to unlock coalition negotiations
  • British PM Theresa May saw some support from officials of her German counterpart Merkel
  • Manfred Weber, who leads Merkel’s Christian Democrats in the European Parliament and is a self-proclaimed skeptic on Brexit, changed his tone dramatically after meeting May saying the U.K. had a “credible” position and there was a “willingness to contribute to a positive outcome”
  • Sterling came under pressure after a Politico report said the EU’s Chief Brexit Negotiator Michel Barnier’s team flatly reject May’s bid for a “bespoke” trade deal
  • Fed officials are pushing for a potentially radical revamp of the playbook for guiding U.S. monetary policy. With inflation and interest rates still low, the central bank has little room to ease policy in a downturn
  • U.S. Treasury Secretary Steven Mnuchin is trying to persuade businesses and the Republican faithful to get behind a proposed tax overhaul from the Trump administration that so far lacks broad public support
  • The tax plan has provisions that may affect coverage and increase medical expenses for millions of families
  • President Robert Mugabe’s refusal to publicly resign is stalling plans by Zimbabwe’s military to swiftly install a transitional government after seizing power on Wednesday
  • Tax overhaul update: President Donald Trump is scheduled to head to the House, rallying Republican members before vote on tax bill
  • German Chancellor Angela Merkel meets heads of her Christian Democratic-led bloc, Free Democrats and Green party to kick coalition talks into gear
  • Cisco Sees First Revenue Growth in Eight Quarters; Shares Up
  • Koch Brothers Are Said to Back Meredith Bid to Buy Time Inc.
  • Health Care for Millions at Risk as Tax Writers Look for Revenue
  • Cerberus’s Feinberg Switches Strategy to Shake Up German Banking
  • Mattel Drops on Report That It Rebuffed Approach From Hasbro
  • New SUVs at Peugeot, Ford Offset U.K. Drag on Europe Car Sales
  • Google Sued for Using ‘Bait and Switch’ to Hook Minority Hires
  • Santos Seen Luring More Bids After Rejecting $7.2 Billion Offer
  • AT&T’s Clash With America Movil Slows Nafta Telecom Talks
  • Mobileye’s $15 Billion Deal Masks Drop in Israel Tech M&A
  • Mugabe’s Refusal to Resign Is Said to Stall Zimbabwe Transition

In Asian markets, a modest uptick in US stock index futures helped the Nikkei 225 stem some of its recent losses, with financials and retailers leading the way; as a result, he Japanese blue-chip index closed up 1.5%. The ASX (+0.2%) also managed to shake off its early losses, last closing up, with the energy sector outperforming (although this was on the back of confirmation of a rebuffed Santos takeover offer) as consumer staples and utilities weighed. Chinese stocks edged lower, while the Hang Seng moved higher Treasuries operated in a narrow range throughout the APac session, while JGBs were relatively listless, with a solid 20-year auction the highlight of the session. Aussie bond yields moved to session highs in the wake of the aforementioned labour market release, where they consolidated.

In European markets, equities kicked off the session on the front-foot in a continuation of some of the sentiment seen overnight during Asia-Pac trade (Nikkei 225 +1.5%). Some slight underperformance has been observed in the FTSE 100 with gains capped by a slew of ex-dividends which have trimmed 14.56 points off the index. Notable ex-dividends include both of Royal Dutch Shell’s listings, with the oil-heavyweight subsequently hampering the energy sector as WTI and Brent crude have failed to make any meaningful recovery from Thursday’s losses. Elsewhere, the likes of Fiat Chrysler (+2.5%) and Volkswagen (+2.4%) have been giving a help hand by the latest EU new car registration data. In fixed income, a limited reaction to better than forecast UK consumption data, and clear reservations about retail activity over the key Xmas and New Year period based on bleaker signals from anecdotal surveys and non-ONS data. Hence, Gilts dipped to 124.72 (-15 ticks vs +8 ticks at best), while the Short Sterling strip reversed pre-data gains to stand flat to only 1 ticks adrift before stabilising again. In truth, core bonds were already on the retreat from early highs (ie Bunds down to 162.43 vs 162.71 at best) in what appears to be a broad  retracement within recent ranges rather than anything more meaningful.

 

In FX, GBP has once again been a key source of focus with GBP/USD hit early doors amid reports in Politico that the EU are leaning towards rejecting the UK’s request for a bespoke trade deal. However, sentiment saw a mild recovery after reports in the Sun suggested that PM May could be on the cusp of upping her Brexit settlement offer in an attempt to kick-start trade talks. The main data release of the session thus far came in the form of UK retail sales which painted a less dreary picture of the UK economy than some had feared, although gains were short-lived as Brexit remains the focus. Marginal sterling buying was seen in EUR/GBP, trading around session lows, helped by a stop hunt through yesterday’s lows. Cable too saw a bid later in the session, benefiting from the weaker USD. Elsewhere, EUR/USD is back below 1.1800 vs the USD after topping out just ahead of October’s 1.1880 high, and now in a fresh albeit higher range flanked by big option expiries between 1.1795-1.1800 (913mln) and 1.1815-25 (4.8bln). Another roller-coaster ride for the Antipodeans, with AUD choppy on mixed labour data (headline count miss, but jobless rate and full employment upbeat) and pivoting the 0.7600 handle vs the USD.

In the commodities complex, as mentioned above, WTI and Brent crude futures have failed to make any noteworthy recovery from the sell-off seen on Tuesday with energy newsflow particularly light during today’s session thus far with markets looking ahead to the November 30th OPEC meeting which is set to give nations the instruction to extend oil production cuts. In metals markets, gold prices have traded in a relatively similar manner with prices unable to be granted any reprieve from their latest tumble. Elsewhere, Nickel and Copper have been weighed on, sending prices to multi-week lows as concerns around Chinese growth prospects continue to linger.

Looking at the day ahead, weekly initial jobless claims, Philly Fed PMI for November, import price index for October, industrial production for October and NAHB housing market index for November will be released. The BoE Carney’s, Broadbent and Haldane will all participate at a public plenary session while the ECB’s Villeroy de Galhau and Constancio are due to speak, along with the Fed’s Williams, Mester and Kaplan.

US Event Calendar

  • 8:30am: U.S. Initial Jobless Claims, Nov. 11, est. 235k (prior 239k); Continuing Claims, Nov. 4, est. 1900k (prior 1901k)
  • 8:30am: U.S. Philadelphia Fed Business Outl, Nov., est. 24.6 (prior 27.9)
  • 8:30am: U.S. Import Price Index MoM, Oct., est. 0.4% (prior 0.7%); U.S. Export Price Index MoM, Oct., est. 0.4% (prior 0.8%);
  • 9:15am: U.S. Industrial Production MoM, Oct., est. 0.5% (prior 0.3%); Capacity Utilization, Oct., est. 76.3% (prior 76.0%)
  • 9:15am: U.S. Bloomberg Consumer Comfort, Nov. 12, no est. (prior 51.5); Economic Expectations, Nov., no est. (prior 47.5)

Central Bank speakers:

  • 9:10am: Fed’s Mester delivers keynote address at Cato Conference
  • 1:10pm: Fed’s Kaplan speaks to CFA society in Houston
  • 3:00pm: ECB’s Constancio speaks in Ottawa
  • 3:45pm: Fed’s Brainard delivers keynote at OFR FinTech Conference
  • 4:45pm: Fed’s Williams speaks at Asia Economic Policy Conference

DB's Jim Reid concludes the overnight wrap

There has been a lot of noise around the HY market in the past week or so as a combination of macro factors along with some notable earnings misses have weighed on the market. iTraxx Crossover and CDX HY have widened by around 25bps and 30bps respectively from their most recent tights, while the price level of the largest USD HY ETF (HYG US) is basically back to the same level as where it started the year, however this overstates the move in the US cash market and even more so in Europe. Looking in more detail at the cash market US HY has widened by around 60bps and EUR HY is 46bps wider from the  recent cycle tights only a few weeks back but both are still around 25bps and 100bps tighter on the year respectively.

In a broad historic context the recent moves hardly register but in the context of a year that has been headlined by extremely low levels of volatility they are certainly significant. For EUR HY there were two other periods where we saw some sort of correction this year. In March/April (ahead of the French elections) the index widened 27bps in 42 days and then in August/September (after the North Korean escalation) we saw a 29bps widening over 30 days. So the current 46bps of widening in just 12 days has been somewhat more aggressive than anything else we’ve seen this year.

Looking at similar data for the US we have also seen two previous corrections. In March spreads widened 61bps in 20 days and then in July/August we saw 45bps of widening in 15 days. So the current c.60bps widening over 22 days is actually of a similar magnitude to this year’s previous corrections. The moves look even more stark when we focus on single-Bs though. EUR single-Bs have widened by more than 100bps from the most recent tights, more than halving the YTD tightening we had seen. For USD single-Bs the recent widening (65bps) has actually reversed more than 80% of the YTD spread tightening we had seen to the recent tights.

The question from here is whether this recent back-up in spreads is simply going to lead to a fresh buying opportunity or whether it will lead to something more significant. Despite some of the recent profit warnings we think that it is more likely to be the former at the moment. But at the very least the pace of this turn around highlights how quickly market sentiment can change, especially when spreads are so tight. HY was looking very very stretched relative to IG in Europe and this corrects some of that. Overall it certainly provides us with some food for thought as we look to publish our 2018 outlook in the next 10 days.

Even though US HY has been one of the weaker markets of late there’s no doubt that the recent global equity sell off has struggled to gather momentum as the US session has progressed over the last week. Following through on this, Asia has been weak since the Nikkei sudden sell-off last week and Europe has followed with yesterday seeing the 7th successive daily fall in the Stoxx 600 (-0.49%) – the longest losing streak since October/November 2016. Meanwhile yesterday the US (S&P 500 -0.55%) again closed off the early session lows showing that this equity sell-off isn't really being US led. For the record since last Wednesday's close the S&P 500, Stoxx 600 and Nikkei are down -1.15%, -3.17% and -3.86% respectively which helps illustrate this.

Volatility has been on the way up though even in the US over this period. The VIX spiked to 14.51 intraday which was the highest since August 18th. It closed at 13.13 (+13%) which is still the highest since the same period. Meanwhile the VSTOXX index was up +2.25% and is now at the highest level since early September.

This morning in Asia, markets have stemmed losses and are trading higher. The Nikkei (+1.24%), Kospi (+0.52%), Hang Seng (+0.53%) and ASX 200 (+0.30%) are all up as we type. WTI oil is trading marginally higher and after the bell in the US, Cisco was up c6% after guiding to its first revenue gain in eight quarters.

On now to the big data of the yesterday and possibly the month. US Core CPI inflation surprised modestly to the upside in October, rising 0.225% in month-on-month terms (a firmer 0.2% print than DB expected). This raised the year-overyear rate to 1.8% (1.7% expected). The data provide additional evidence that the core inflation trend is firming after a string of very weak prints earlier this year. According to our economists, the three-month annualised change in core CPI inflation is now at 2.4%, the strongest since February 2017. We think inflation is turning a corner and regular consistent misses vs expectations will not be a feature of markets in 2018.

Staying in the US, the House’s version of the tax plan is reportedly on track for a vote on Thursday (local time). In terms of the Senate’s version, rhetoric appears to be heating up as the mark up process continues. The Democrats were reportedly not impressed with the last minute change to add in the repeal of the Obamacare individual mandate, to which Republican Senator Collins partly agrees on, noting that it “gravely complicated our efforts to combine tax reform and changes”, although she has not decided whether to vote against the bill or not. Elsewhere, Republican Senator Johnson has publicly confirmed that he is opposed to the revised GOP plan as it stands, in part as it does not do enough to help partnerships relative to the larger tax cuts for corporates.

Quickly recapping other markets performance from yesterday. Bond markets were firmer with core bond yields down 2-5bp (UST 10y -5bp; Bunds -2.1bp; Gilts -3.5bp) while peripherals underperformed with Portugal bonds leading the softness (+2.5bp). Key currencies were little changed, with US dollar index marginally higher, while Euro dipped -0.06% but Sterling rose 0.05%. In commodities, WTI oil fell another -0.70% (-3.2% for the week), in part following reports that Russia believes it’s too early to announce a potential extension of production cuts at OPEC’s meeting at end of the month. Notably, WTI is still up c18% from late August. Elsewhere, precious metals softened a little (Gold -0.16%; Silver -0.14%) and other base industrial metals were little changed (Copper -0.45%; Zinc -0.54%; Aluminium +0.36%).

Away from the markets, there were a deluge of Fed and ECB central bankers commentaries yesterday but overall contained minimal market moving information. In the details, the Fed’s Evans noted he was open-minded regarding policy action at the December FOMC ahead of discussions with fellow colleagues and sounded dovish on inflation, noting “I feel we are facing below target inflations” while reiterating the US labour market is “vibrant” and unemployment rate “could go below 4%”.

In Europe, the ECB’s Hansson was upbeat on the demand side of the economy and “feel more confident that inflation will eventually reach the levels consistent with our aim”. Elsewhere, the ECB’s Praet pointed to the importance of interest rates post QE, noting that “policy rates will eventually regain their status as the main instrument of policy, and our forward guidance will revert to a singular approach”. Finally, the ECB’s Coeure noted that it’s important for the ECB “to ensure that our own measures do not adversely affect the intermediation capacity of repo markets”.

Over in China yesterday, there were more signs that the government may tolerate slower economic growth in 2018. The Economic Daily reported that the deputy head of the Research Office of the State Council Ms Han has flagged that GDP growth at 6.3% in 2018-2020 would be sufficient to achieve the Party's 2020 growth target. As a reminder, our Chinese economists expect GDP growth to slow to 6.3% yoy by 1Q.

Finally, over in Zimbabwe, President Mugabe’s c40 years of power may be coming to an end with Bloomberg reporting the 93 year old was confined to his home, with military forces taking control of state owned  media outlets and sealing offthe parliament and central bank’s offices.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the core retail sales for October (ex-auto & gas) was in line at 0.3% mom, but with the prior reading upwardly revised by 0.1ppt. Elsewhere, the September business inventories was flat and in line for the month. Finally, the November empire manufacturing index fell from a c3 year high of 30.2 to a still solid reading of 19.4. After the recent economic data, the Atlanta Fed’s GDPNow estimate of 4Q GDP growth has edged 0.1pp lower to 3.2% saar.

In the UK, the September unemployment rate was in line and steady at 4.3% – still at a 42 year low, while the average weekly earnings remains low but was slightly above expectations at 2.2% yoy (vs. 2.1% expected). Elsewhere, jobless claims (1.1k vs. 1.7k previous) and claimant count rate (2.3% vs. same as previous) were broadly similar to prior readings. The Eurozone’s September trade surplus widened to EUR$25bln (vs. EUR$21bln expected), while the final reading for France’s October CPI was unrevised at 0.1% mom and 1.2% yoy.

Looking at the day ahead, the final October CPI report for the Euro area will be out. UK retail sales data for October and Q3 employment data for France will also be released. In the US weekly initial jobless claims, Philly Fed PMI for November, import price index for October, industrial production for October and NAHB housing market index for November will be released. The BoE Carney’s, Broadbent and Haldane will all participate at a public plenary session while the ECB’s Villeroy de Galhau and Constancio are due to speak, along with the Fed’s Williams, Mester and Kaplan.

http://WarMachines.com

Why We’re Buying Physical Gold with a $1700 Target

originally on marketslant.com

For What it is Worth: We are buying Gold in our small family fund. This is a trade, not an investment. Potentially a much longer term trade for us than normal, possibly a 12 month hold as opposed to our 3 day positions. We are buying physical in quantities that will not need to be sold if we are wrong, thus no leverage. We will also be swing trading gold with an upward bias as our indicators dictate below $1260 or above $1306.

Target  picking is risky in an asset whose value is largely based on sentiment and prone to being “jawboned” into its proper place. But we believe for various reasons that if Gold does not pierce $1260 spot, its chances of a rally topping between $1450 and $1700 are strong over the next 12-18 months. The wide target range reflects the emotional factor in Gold’s behavior far outweighing supply, production costs, and its lack of fundamentals to measure using tools like EBITDA, PE, and cash flows. And our own analysis is corroborated from several different disciplines from whom we did not seek out to rationalize. It’s a trade, that’s all. But it’s a very good and very rare risk reward trade. it has set up right now. Further, it will either be violently and decisively confirmed (or negated) above $1306 or below $1260.

Why are we sharing this? That same question should be asked of Ray Dalio, Jeff Gundlach and others who announce they are bullish on Gold after they have  bought. Our own position is not relevant to the market overall and we do not need to market our tiny positions to create an exit strategy a la George Soros.  The premise for the trade happens so rarely its worth writing about, if for no other reason as an exercise in outsourcing our self-discipline on the trade. 

Vince Lanci for SKG

vlanci@echobay.com 

Here is how  we came to be this way.

Step 1: Volatility is Coiling

When trading short term periods, intraday and intraweek, we use a volatility system for alerts to incipient movement. We risk 1 to make 2 and move  on when wrong. It works about 50% of the time. it is net profitable. And best of all, positions that are in limbo are closed expeditiously. This is after all a volatility system. No vol, no position. It’s been cited here many times in the past. When it is right, it is very right. when it is wrong, you are out. Past posts and a 25 year track record of use bear this out from our active days.  The bottom of this post goes into more detail on its use.

What we never did at Echobay or its predecessor fund CIS Energy, was use it on long term charts. We certainly looked at them, but only for bias in shorter term trades.  Last month we took a serious look at our VBS algorithm on a monthly chart. Here is what we found:

Updated from : Gold Macro Analysis: A November to Remember

Gold has a  tremendous risk reward setting up above $1306 or below $1260….. which way from there is not known but can be handicapped once either number is breached

for a nexplanation of VBS see bottom Appendix

Step 2: How Equity Funds Play Gold

Portfolio managers at large equity funds who have contributed here anonymously use systems that advise them when being in cash as opposed to long stocks is prudent. What is also known is that funds like these  punt gold positions with their discretionary in-house money for fun.

They use similar systems for entry and exit, and never risk much in their positions. Gold is a hobby to these guys. As a result, they like to buy and walk away with long term trade orientations and firm stops. This means using long  term moving averages to avoid noise. We know this is true.  And here is an example of how that type of positions is implemented:

 In a recent interview a vocal critic of the Gold industry explained why he was buying Gold

…Gold is poised to close above its 12-month moving average for the second straight month. Going back to 1970, the average monthly return for gold following a close above the 12-month moving average is 1.47%. The average monthly return following a close below the 12-month moving average is -0.15%.

If you used the simplest of trend-following methods, investing in gold when it was above its 12-month moving average, and going to cash when it is below, the results would have been far better than just buying and holding gold. He continues:

The chart below shows when you would have been invested in gold and when you would have been out. Granted, prior to GLD, this could only have been done with futures contracts, or gold bullion, with the former adding a degree of leverage that I would not have been comfortable with, and the latter adding a degree of paranoia that also would have made me uncomfortable.

Full post : Vocal Critic Explains Why He is Buying Gold

About Physical vs. ETF: While we agree with the rationale behind GLD vs futures if you are trading and not investing, we feel for multiple reasons the physical gold market is going to open up and become a serious competitor to ETF allocations within 12 months. Specifically, blockchain products are coming,  and if properly implemented as a pipeline, owning physical gold not held in trust by a GLD custodian will be as easy as clicking a mouse. You will buy and sell physical Gold that will be yours and verified via the blockchain system.

So for us, physical gold now has the benefit of increased  liquidity on the horizon, which means increased transactions and exposure. Which ultimately means decentralization of the Gold market from a few large firms to grass roots stackers, owners, and value preservers. We view emerging technologies as putting physical assets in a position to  have their true value unlocked. Whether that be the tea farmer in India who can’t currently get a loan on his land due to government rules, to Silver whose value is somewhat disconnected from its  price. The effect will not be unlike when a private company goes public. Accessibility and liquidity creates safety and increases demand. Owning physical metals is like owning a beneficiary of technology down the road.

Monthly Chart Through July 2017 using the 12 Month MA described above

 

Step 3: Optimizing the Simple 12 month MA Tool

by optimizing the MA with one factor we back tested greater successes when in trades. Conversely, we were also in less trades. On balance it was a wash. But right now the employed filter says the 12 Month MA has bigger upside than the average if profitable at all. A rare chance to buy close to the level the fund punters did with a statistical chance of greater profits than the  1.47% monthly average  generated by the original backtest.

Updated and Optimized by the Author

 

The chart below shows the hypothetical results from each of the 30 exits following an entry (going back to 1970). Using these rules would have resulted in a loss two-thirds of the time. But as you can see, the losses have been relatively shallow, not exceeding 10%, while the gains have been good to extraordinary.

Step 4: Using VBS for Confirmation of Direction

Simply put: If we get a VBS signal trigger when $1306 trades, a decision must be made to add, sell, or hold based on the data that comes with the signal. If we get one on a $1260 print, the same must be assessed. 

 

Step 5: Actions

  1. We are buying Gold now based on the “Fund Finder” signal with a monthly stop out below the yellow line in that chart above.
  2. $1306- we will consider adding a shorter term amount in a rally if the monthly VBS is triggered higher
  3. $1260-  we will consider either adding physical, or selling paper Gold for swing trading purposes if the VBS is triggered lower.
  4. Per #1- we will close or hedge the first physical purchased on a monthly settlement below $1244 – the wide berth on monthly exits necessitates no leverage 

 

Bonus: Moor Analytics comes to a similar conclusion from a different perspective.

Moor Analytics: Gold Downside May Finally be Exhausted

Within the overall bearishness I noted that a possible area of exhaustion for this move down from 13624 comes in at 12732-644.  We basically held this, but with a $1.6 violation, and rallied to 13084 before rolling over and rejecting from it again (although this time down the 12628 was simply support, not exhaustion)

And Michael’s most recent weekly report of Nov. 10th

Via Moor Analytics:

I would note that we broke above a well-formed macro line in the week of 8/7 that came in at 12629. The
break above here projects this upward $183 minimum, $501 (+) maximum—the maximum to be attained likely within 9-12
months. This line comes in at 12357 today. I am late to the game on this, but we were only $18 from the original breakout
when I mentioned this, and have a lot of room to go in the projection.

 

Appendix

 

What is VBS?

  • Volatility Based Risk Reward Generator

+ Originally developed as an alert to when the risk of being short implied volatility is larger than being long it, and vice-versa
+ It is a probability model that handicaps risk reward
+ As a by-product of its original purpose, it gives risk/reward scenarios in market direction. 
+ Due to its accuracy in predicting volatility expansion, directional applications are right or wrong quickly and is very useful in efficient use of capital

 

How VBS Works

  • Time is precious, Price is noisy, Volatility is less so.

+Volatility is less noisy than price, therefore more reliable as an indicator. 
+Volatility cycles more cleanly and  can be seen to “inhale and exhale” when viewed graphically with Bollinger Bands
+VBS is based on several relationships between historical and implied volatility  across different time frames
+ It can  be applied by traders on any time frame

 

VBS and Direction

  • It doesn’t predict price, only speed of movement

+It gives non-directional alerts and was initially developed for optimizing option portfolio risk.
+While not predictive directionally, VBS gives as a by-product excellent risk-reward setups for directional plays

 

VBS Process

  • Radar, Alert, Trigger, Entry, Exit
  1. Radar- VBS generates 2 prices, one above and one below current prices for a “breakout” in market volatility 
  2. Alert- One of the prices is breached and closes its bar/ candle beyond that price level.
  3. Trigger- Real volatility will expand
    • Market direction does not have to continue in the direction the price in #1 was broken
    • volatility based risk- reward prices are generated for directional use. I.E. Risk 1 to make 2
  4. Entry- using the  VBS risk/ reward generated levels, a decision is made to either go with the directional trend, against it, or do nothing
    • The trigger gives 2 bites at the apple if the trader so desires.
    • In “first way, wrong way” scenarios reversal levels are generated (N.B.- our preference is to not play the reversal and have left money on the table in favor of the trauma of being “chopped up”. if compelling, we have used options to remain in the game on reversals)
  5. Exit- is either from a stop-out, a profit capture, or a time limit
    •  Stop-Loss- are generated by VBS and adhered to religiously. Profitable trades trail stops higher based on expanding volatility
    • Profits- exits can be subjective, we prefer taking 90% of position at target and leaving a tail if the VBS is not signalling Vol is overbought
    • Time Exit- trades  that are neither profitable  nor stopped out are exited  in 3 bars/ candles. The signal is designed for quick confirmation / rejection of the trigger

Good Luck

http://WarMachines.com

A Direct Threat to the West, The Bond Between China and Russia Strengthens

 

A Direct Threat to the West, the Bond Between China and Russia Strengthens

Written by Nathan McDonald, Sprott Money News 

 


A Direct Threat to the West, the Bond Between China and Russia Strengthens - Nathan McDonald

 

Whether the financial elites of the West know it or not, they are sending us down the path of defeat. Will this happen next week, next month, or even next year? This is highly unlikely, but what is most certainty assured, is the slow decline of the West’s power and its geopolitical influence over the rest of the World.

 

 

As I have written about numerous times in the past, our financial and political leaders in the West are creating an unholy alliance between Russia and China, two super powers that now have the ability to oppose the West, flip the switch and de-throne the King Dollar whenever they want. The question is not if, but when at this point.

 

 

Through sanctions, negative rhetoric and abuse of the powers that the United States have been bestowed through being blessed with the ability to print the World’s reserve currency out of thin air, whenever and in whatever quantity it wants, the West has ensured that other countries will act in their own best interest and eventually attempt to overthrow the rotting fiat based system that we live under.

 

 

Perhaps this is for the best? Perhaps it is not, and we are looking at a future that is both abysmal and filled with tyranny. Despite the many faults of the Western political system, it is still relatively free, especially when compared to that of the Chinese and Russian based systems.

 

 

Sadly, it appears that it is unavoidable at this point that the torch will eventually be passed from the West to the East, as Western governments continue to spit in the face of the “golden rule”, while the Eastern officials embrace it. He who holds the gold, makes the rules.

 

 

It almost seems weekly now, that another news article is released, proving that the alliance between Russia and China continues to not only grow, but flourish. Therefore it comes as no surprise to learn once again that these two countries have entered into another partnership that will strengthen their bond that much more.

 

 

As Bloomberg reports:

 

Russia’s state-owned Far East Development Fund is in talks to create a $1 billion joint venture to invest in the country’s mining industry with China National Gold Group, a government controlled producer of the precious metal.

“We and China Gold will create an attractive financial platform that private investors can take part in and make money,” Alexey Chekunkov, head of the fund, said in an interview in Danang, Vietnam, where he attended an Asia-Pacific Economic Cooperation business forum. “Our first goal will be to invest in gold, precious metals and copper projects.”


This is just further proof of how close these two countries are becoming and how they are
jointly beginning to work together. Their obsessions with gold should not be overlooked, as it has been alluded to more than once what their intentions are: a hard asset-backed currency, with gold being one of the main components.

 

We will continue to see reports such as this being disclosed on a monthly basis. Their thirst for the yellow medal is insatiable and their need to protect themselves against the ravages of fiat money being unleashed by Western powers is paramount.

 

As we discussed before, the question is not if, but when. Plan accordingly.

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

A Direct Threat to the West, the Bond Between China and Russia Strengthens

Written by Nathan McDonald, Sprott Money News 

 

http://WarMachines.com

Gold Bounces Off Key Technical Support On Massive Volume

The last 48 hours has been quite a chaotic one in precious metals markets with massive volumes of 'paper' gold flushed in and out of the futures markets. This morning – shortly after the US open failed to spark a panic-bid in stocks – gold futures bounced off their 200-day moving average on huge volume (around $4.5 billion notional) breaking above the 100DMA…

The last day or so has seen a plunge below the 100DMA (on 33,000 contracts – around $4.2 billion notional), then another flush to the 200DMA as Europe opened overnight (on 22,000 contracts – around $2.8 billion notional) and then shortly after the US equity open, a 35,000 contract ($4.5 billion notional) rip higher off the critical moving average…

 

Once again the moves in gold appear to mirror manipulation in USDJPY…

 

Silver is echoing Gold's moves today but yesterday's standalone move remains…

http://WarMachines.com

US Futures, Global Stocks Extend Decline After Disappointing Chinese Data, Dollar Slides

U.S. index futures declined for the second day in a row, dipping 0.1% to the lowest in more than a week following declines in Asian and European shares. European stocks tried and failed to shrug off the negative sentiment that spurred broad-based declines in Asia following another month of disappointing Chinese macro data

… eventually reversing gains as the euro strengthened on German growth data. The euro was up a fifth day, rising above 1.1700 for the first time in nearly three weeks after data showed that German GDP was on track for its best year since 2011, forcing Europe’s Stoxx 600 Index to retreat. The U.K.’s FTSE 100 Index jumped 0.1 percent, while Germany’s DAX Index gained less than 0.05%.

Mining companies led the drop, with many commodity prices also falling in the wake of data showing China’s economy moderating. That also weighed on Asian equity gauges, though the Nikkei closed little changed after dropping for four days. The yield on China’s 10-year debt briefly breached 4 percent for the first time in more than three years. China’s CSI300 Index slid as much as 1%, its biggest intraday drop this month, as tech shares lead decline. Sanan Optoelectronics Co. slumps 7% to pace declines on the CSI300 Index; Unigroup Guoxin Co. -5.2% as second-worst performer.

Earlier, Asian stocks dropped headed for a third day of declines, as data showed China’s economy is moderating. The MSCI Asia Pacific Index retreated 0.4 percent to 169.44, with telcos and energy producers leading losses. Despite earlyer gains, the Nikkei closed fractionally in the red again as foreigners resumed selling after a record month of buying in October. The Yen pared losses against the dollar, as traders wait on U.S. inflation data from Tuesday and look for progress on the tax reforms. Japan’s Topix dropped 0.3% while South Korea’s Kospi lost 0.2%. Australia’s benchmark index slumped 0.9% after Royal Dutch Shell Plc sold its entire stake in Woodside Petroleum Ltd., sending the latter’s shares down the most in more than a year.

According to Bloomberg, Asian equities were taking a pause from a world-leading 2017 rally as traders tuned in to China’s economic data. Numbers released Tuesday show the country’s expansion dialed back a notch as factory output, investment and retail sales all decelerated.

“Investors have concerns about a possible fourth-quarter slowdown in China,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. MSCI Inc. announced the results of its November 2017 semi-annual index review which included the deletion of Qantas Airways Ltd. and the addition of Japan’s Sumco Corp.

Markets have been under pressure for the past few days after a global rally took U.S. stocks to records and Japan’s to the highest in a quarter century. This morning market participants were monitoring an ECB conference featuring appearances by Mario Draghi, Janet Yellen, Mark Carney and Haruhiko Kuroda. Meanwhile, U.S. inflation and retail sales numbers that could influence Federal Reserve interest-rate hike odds are on the docket tomorrow, and U.S. tax discussions are ongoing. Fed’s Kaplan stated that the Fed are actively discussing lifting rates next month

Elsewhere, and as reported earlier, Venezuela was declared in default by S&P Global Ratings after missing two interest payments on its debt. Indian sovereign bonds fell for a third day, with the benchmark 10-year yield reaching the highest since September 2016, on accelerating consumer inflation data. Bitcoin edged higher after three days falling.

The common currency heads for a bullish reversal of its trend since the 2 1/2 year high of 1.2092 hit on Sept. 8 as the short- squeeze started on Thursday gained momentum. Investors that are short the euro see their trailing stops being filled, while short-term accounts were stopped out on Tuesday’s run up to 1.1720 high, traders in London and Europe told Bloomberg.

“It is not the dollar that is weak, it is the euro that is strong,” said John Hardy, Saxo Bank’s head of FX strategy. Combined with signs of a move up again in European bond yields, that suggested some traders were back to pricing in an end to the ECB’s stimulus, he said.

In geopolitical developments, overnight President Trump tweets: “After my tour of Asia, all Countries dealing with us on TRADE know that the rules have changed. The United States has to be treated fairly and in a reciprocal fashion. The massive TRADE deficits must go down quickly!” Russian PM Medvedev says Russia has stake in peace on Korean Peninsula, as South Korean President Moon calls for enhanced ‘strategic’ dialogue between South Korea & Russia. US House Ways & Means chair Brady says that the GOP leadership is confident that it has votes for passage of tax bill, major changes to house tax bill are unlikely at committee stage.

In macro, German growth data pressured investors with short-euro exposure as the common currency hit its strongest level in almost three weeks. The dollar was broadly lower within tight ranges during Asia hours before the weakness grew in the London session. The British pound was tipped lower as inflation missed forecasts, and the dollar broke out of a tight range to weaken as traders continue to weigh the chances of a meaningful tax overhaul. Data from the CFTC released on Monday showed the net short position in the Japanese yen to be the largest since January 2014 and in the Swiss franc to the biggest since December 2016.

In rates, yields on 2Y Treasurys hit a fresh nine-year high of 1.6910% on Monday, shrinking the 2s-10s spread to near its smallest since 2007. The trend reflects market bets the Fed’s plans to raise rates in December and two or three times next year will slow the economy. On Tuesday, European bonds turned positive. Aussie bonds were hurt after business conditions printed at highest on record, while China’s sovereign bond selloff reached a fresh milestone, with 10-year yields breaching 4% for the first time in more than three years, before retracing losses and closing back under 4%. 

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said history suggested a flatter, and particularly an inverted, yield curve was “compelling as an early warning sign” of recession. But with the average amount of time it has taken the curve to go from flat to inverted being 18 months and another 18 months to go from inverted to recession, it suggests the expansion still has multiple years in it, said Porcelli.

In commodity markets, gold inched down to $1,272.50 an ounce. The metal has stayed broadly within $15 an ounce of its 100-day moving average, currently at $1,277 an ounce, for most of the last month. Oil prices held in a tight range as support from Middle East tensions and record long bets by fund managers balanced rising U.S. production. U.S. crude was off 19 cents at $56.57, while Brent crude futures eased 23 cents to $62.92 a barrel.

Mining shares lead the drop amid weakness in commodity prices. Economic data include small business optimism index and PPI readings, while Home Depot and TJX are set to report earnings.

Bulletin Headline Summary from RanSquawk

  • Lower than expected UK CPI weighs on GBP
  • EUR bid following German GDP
  • Looking ahead, Draghi, Yellen, Carney, Kuroda all currently speak, with US PPI and APIs due later

Market Snapshot

  • S&P 500 futures down 0.1% to 2,579
  • STOXX Europe 600 down 0.08% to 385.82
  • MSCI Asia down 0.4% to 169.53
  • MSCI Asia ex Japan down 0.3% to 556.72
  • Nikkei unchanged at 22,380.01
  • Topix down 0.3% to 1,778.87
  • Hang Seng Index down 0.1% to 29,152.12
  • Shanghai Composite down 0.5% to 3,429.55
  • Sensex down 0.2% to 32,964.82
  • Australia S&P/ASX 200 down 0.9% to 5,968.75
  • Kospi down 0.2% to 2,526.64
  • German 10Y yield fell 0.2 bps to 0.415%
  • Euro up 0.3% to $1.1706
  • Italian 10Y yield fell 1.2 bps to 1.568%
  • Spanish 10Y yield fell 2.7 bps to 1.505%
  • Brent Futures down 0.3% to $63.00/bbl
  • Gold spot down 0.4% to $1,273.54
  • U.S. Dollar Index down 0.1% to 94.39

Top Headline News

  • Brexit Secretary David Davis reckons it’s as close as 50-50 whether he gets a breakthrough in divorce talks by December, according to European business leaders he briefed at a meeting Monday. His spokesman later said this news was “categorically untrue” and that Davis had not made such a comment
  • Trump is seeking a qualified candidate to serve as Federal Reserve chairman nominee Jerome Powell’s vice-chair; candidate doesn’t necessarily have to be Ph.D. economist
  • Trump said he will be making a major statement once back in Washington
  • U.K. inflation came in less than forecast as cheaper auto fuel offset the rising cost of fuel, but the measure still held close to a 5 1/2-year high
  • German growth steamed ahead in the third quarter, keeping Europe’s largest economy on track for its best year since 2011. That expansion is bolstering the euro area’s upturn and supporting the global outlook. Similar data from Italy showed the economy expanded at a faster pace last quarter
  • Traders are increasing bets on the divergence of the world’s three major central banks, ramping up long future positions on German bunds and Japanese debt while shorting Treasuries, if open interest is any guide
  • China’s economic expansion dialed back a notch in October, as a campaign to manage credit risks took hold and the Communist Party signaled a less stringent approach to hitting growth targets
  • Fed’s Kaplan: Actively considering a December rate hike; there’s a mounting case for moving ahead of signs of price increases: FT
  • Brady says confident House Republicans have votes to pass tax bill
  • German 3Q GDP q/q: 0.8% vs 0.6% est; y/y 2.8% vs 2.3% est.
  • U.K. Oct. CPI y/y: 3.0% vs 3.1% est; food inflation largest upside contributor +4.2% y/y, most in 4 years
  • German Nov. ZEW expectations: 18.7 vs 19.5 est; current situation 88.8 vs 88.0 est.

In Asian markets, Australia’s ASX 200 fell over 1% at one point settling back below 6,000, with broad based losses apparent as the banks, miners, energy and property stocks weighed, while tech outperformed. The index has moved back from worst levels but closed around 0.9% lower as yet another dual-citizenship based issue led to a senator resigning from her post. Japanese stocks benefitted from Wall St.’s lead and the uptick in USDJPY in early trading, but relinquished its the early gains closing down 0.1%. JGB futures were supported heading in to 5Y supply, with decent demand at the auction underpinning the market. Australian 3-year bond yields were up just shy of 5bps on the day, moving through the 2.0% level following the record NAB Business Conditions print. 10-year Treasury futures consolidated around US session lows.

  • China Industrial Production (Y/Y) Oct 6.2% Exp. 6.3% Prev 6.6%
  • China Retail Sales (Y/Y) Oct 10.3% Exp. 10.4% Prev 10.3%
  • China Fixed Asset Investment (YtD Y/Y) Oct 7.3% Exp. 7.4% Prev 7.5%

China’s NBS suggested that rising profits and government cost cutting measures are helping firms de-leverage. The body also noted that property de-stocking has achieved obvious results, and it expects the sector to maintain a healthy trend. Finally the bureau stated that the nation’s survey based jobless rate is <5% in October, and that the country has already exceeded its FY job creation total.

Top Asian News

  • China 10-Year Yield Breaks 4% as Analysts See Selloff Worsening
  • China’s Economy Moderates as Retail, Factories, Investment Slow
  • Reliance Communications Is Said to Default on 2020 Dollar Bond
  • China Stocks Retreat as Consumer Subgauge Falls Most Since April
  • Hon Hai Third Quarter Net Income Misses Lowest Estimate

European equities trade subdued, with much of the volatility coming from individual names. Telecoms outperform amid a strong report from UK listed Vodafone (+4.7%), with IT also trading in the green, being led by Infineon. The Dax was weighed upon following a bullish EUR, where EUR/USD and EUR/GBP trade near session highs. No shock to see Gilts and the Short Sterling strip rebound on the back of softer than expected UK headline inflation,  even though the y/y rate remains likely to breach the upper limit at some stage, and probably soon. The 10 year debt future has now jumped around ¼ pt from fresh pre-data session lows of 124.25 to 124.53, while 3 month futures are 0.5-2 ticks ahead vs -0.5 to -4 ticks at worst. Bunds also recovering more poise on the back of their UK bond counterpart and up through the nearest upside chart resistance to 162.16, +8 ticks vs -17 ticks at the Eurex low, but probably in need of some independent buying momentum to make a clean break, especially with more Eurozone data and ECB speakers (including chief Draghi) looming.

Top European News

  • U.K. Inflation Holds at 3% as Cheaper Fuel Offsets Food Prices
  • Vodafone Boosts Outlook as Data-Hungry Users Ditch Wi- Fi
  • Ericsson Cost-Cutting Plan Ends at R&D Department’s Doorstep
  • Carrefour CEO Delays Strategic Revamp Until After Christmas
  • Portugal’s Fitch Call a Potential ‘Rubicon’ Moment: Rabobank
  • Italy Economy Expands At Faster Pace in Sign of Firmer Recovery

In FX, volatility has been led by data this European morning, as early EUR strength was seen following strong German GDP figures. Further bullish pressure was seen in EUR/GBP, as UK CPI has been the catalyst of the day, printing at 3.00%, lower than expected resulting in GBP selling. In the AUD, choppy trade, with support coming from an upbeat NAB business survey overnight (sentiment at record highs and outlook improved), but the AUD recovery undermined my more political concerns as another MP was forced to quit on dual nationality grounds. AUD/USD back down in the low 0.7600s having reclaimed 0.7640 at one stage, but AUD/NZD holding 1.1100+ status on Kiwi underperformance (also plagued by political and Central Bank impulses). Sterling mixed after yesterday’s pounding, with Cable back up above 1.3100, but EUR/GBP higher again as Brexit uncertainty persists (UK Minister rates chances of a divorce deal by December as only evens).

In commodities, the latest IEA monthly oil market report saw 2017 and 2018 oil demand growth forecast being cut by 100k BPD to 1.5mln and 1.3mln respectively. Trade was light however, with much of the oil volatility seen in yesterday’s session. Iraqi/Kurd oil flows to Ceyhan have fallen to 180k bpd, according to a port agent Gold saw a stop hunt through last Friday’s lows and as such, the selling pressure moved across other precious metal markets, with Silver now looking towards its last Friday lows.

US Event Calendar

  • 6am: NFIB Small Business Optimism, est. 104, prior 103
  • 8:30am: PPI Final Demand MoM, est. 0.1%, prior 0.4%; Ex Food and Energy MoM, est. 0.2%, prior 0.4%; PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.2%
  • 8:30am: PPI Final Demand YoY, est. 2.4%, prior 2.6%; Ex Food and Energy YoY, est. 2.2%, prior 2.2%; Ex Food, Energy, Trade YoY, prior 2.1%

DB’s Jim Reid concludes the overnight wrap

After a chilly day yesterday, markets heat up today and tomorrow with China’s monthly data dump just out (see below) and lots of global inflation data out today and tomorrow. We also have an audience with the four most important central bankers in the world at 10am GMT this morning hosted by the ECB in Frankfurt which will be a rare and interesting opportunity to hear from the fantastic four on one stage. However it’s not likely to be ground breaking given that Yellen is soon to be replaced, Draghi is figuratively leaning back deep into his armchair for a few months, Kuroda is unlikely to change course soon (see comments from yesterday below) and Carney is waiting on Brexit developments. Elsewhere UK PM May’s Brexit legalisation (the EU withdrawal bill) is the subject of two days of line-by-line examination in Commons. The debate starts at 12pm GMT so plenty of headlines likely after a weak day yesterday for Sterling (-0.61% vs Dollar, -0.57% vs Euro) post the weekend news that there may be increasing party support for a leadership challenge. In terms of inflation data, ahead of the US CPI tomorrow we get the final October CPI report in Germany (+0.0% mom expected and no change from flash), UK CPI/RPI/PPI for October, and US PPI (+0.2% mom core expected). UK inflation being the most interesting with RPI likely above 4% – the first time since December 2011. We will also get the flash 3Q GDP for the Eurozone (+2.5% yoy expected), Germany (+2.3% yoy) and Italy (+1.7% yoy) too.

In the US, the House Ways and Means Chairman Brady appear confident that the House’s version of the tax bill will be passed this week, noting that “we don’t expect major changes” as “a lot of the work’s been done” already. Before that, President Trump is expected to address the full conference of House Republicans this Thursday morning to rally support on tax reform. Elsewhere, the Senate  Finance Chairman Hatch said the mark up process of the Senate’s version of the tax bill “leaves us with some work to do in order to make the reforms permanent”, but “we are working to ensure that the reduced (corporate) rates and…reforms designed to bring investments back to the US…remain in place past the 10 year budget window”.

Now over to China. Both the October IP (6.2% yoy vs. 6.3% expected) and retail sales (10% yoy vs. 10.5% expected) were softer than expectations, but fixed assets formation was in line at 7.3% yoy. Elsewhere, monthly property sales turned negative for the first time since March 2015, dropping to -1.7% yoy from 1.6%. The slower growth is partly due to monetary and fiscal policies that have become less expansionary. Overall, our China economists maintain their view that GDP growth will slow to 6.6% yoy in Q4 and 6.3% in Q1. T his morning in Asia, markets are trading a bit mixed. The Nikkei (+0.36%) and Hang Seng (+0.05%) are up slightly, while the Kospi (-0.24%) and Chinese bourses (c-0.6%) are down as we type, with the latter partly impacted by softer consumer stocks.

Ahead of the fantastic four appearance later today, BOJ’s Kuroda and ECB’s Constancio both sounded a bit dovish on monetary policy yesterday. Kuroda noted that “it’s not easy to quickly dispel the deflationary mindset that has  formed over the course of 15 years of deflation” (Sep. core inflation at 0.7% yoy vs. target of 2%). However, with a steadily improving output gap, companies should gradually raise wages and prices. For now, “the bank will continue to persist with powerful monetary easing to ensure that such positive developments are not cut short.” Elsewhere, the ECB’s Constancio reiterated that “the euroarea economy is experiencing a broad-base, robust and resilient recovery”, although he cautioned that “we know this process still relies significantly on our monetary policy support…..it’s not self-sustained yet….we must be patient and persistent”.

Staying with central bankers commentaries, the Fed’s Harker has tweaked his expectations for a December rate hike from pencilled in to “lightly pencilled in” and that he would be more confident with three more rate hikes in  2018 if underlying inflation picks up above 2%. On inflation, he reiterated that its “one area that not only continues to elicit caution, it even constitutes a conundrum”, but with a tight labour market, inflation “is likely to reassert itself at some point”. On the Fed’s balance sheet unwind, he believes it will be “utterly uninteresting”. In the UK, the BOE’s Haldane noted that inflation is running well above the 2% target (consensus expects 3.1% yoy for Oct.) and “are expected to remain above target for the next few years”. Further, he noted this was one of the main reason why BOE tightened rates last month, but that “small adjustments” to interest rates were “unlikely to have a significant impact” on the daily lives of most people.

Staying in the UK, when Brexit Secretary Davis was asked by the Head of BusinessEurope Ms Marcegaglia on whether he thought a breakthrough for Brexit talks can be achieved by December, Davis was said to have noted that “there was a 50/50 chance of getting a deal” without elaborating more.

Now onto markets performance for yesterday. US bourses nudged up c0.1% (S&P & Nasdaq +0.10%, Dow +0.07%) ahead of a bumper week in terms of CPI and tax plans. Beneath the surface, GE shares dropped 7.17% after the new  CEO announced turnaround plans which included lower FY18 earnings guidance, dividend cuts for the second time since 1938 and plans to divest $20bln of assets to shrink the group to 3 core business lines (power, aviation and healthcare). European markets were broadly lower, with the Stoxx 600 down (-0.66%) for the fifth consecutive day – the longest run since May, with all sectors excluding  consumer staples modestly in the red. The softness was partly impacted by weaker corporate results, with French utility company EDF down 10.39% after lowering its 2018 guidance. Across the region, the DAX (-0.40%), CAC (-0.73%) and FTSE (-0.24%) all fell modestly. Notably, the VSTOXX remains close to a one month high after slipping 0.49% yesterday, while the VIX rose 1.86% to 11.50.

Over in government bonds, core 10y bond yields were little changed (UST +0.7bp; Bunds +0.6bp; Gilts -1.3bp), but peripherals outperformed, with Spanish and Portugal yields down 4.0bp and 7.1bp respectively. Turning to currencies, the US dollar index gained 0.13% while Euro was virtually flat and Sterling weakened 0.61% as mentioned earlier. In commodities, WTI oil was broadly flat (+0.04%) and precious metals strengthened (Gold +0.25%;  Silver 1.02%) post the modest risk off bias. Elsewhere, copper gained 1.40% partly due to increased optimism on global demand while other base metals were little changed (Zinc +0.08%; Aluminium +0.06%).

Away from the markets, the latest IMF World economic outlook report has upgraded the economic growth outlook for the Euro area, with 2017 now expected to be 2.1% yoy (+0.5ppt from April), 2018 at 1.9% (+0.3ppt) and 2019 at 1.7% (+0.1ppt). The agency noted “the strengthening domestic-demand-driven recovery in Europe has boosted global trade,” and that “Europe’s contribution to the growth of global merchandise imports in 2016-17 is similar to that of China and the US combined”.

Finally, the latest ECB holdings were released yesterday. Net CSPP purchases last week was €1.73bn and Net PSPP purchases €12.78bn. This left the CSPP/ PSPP ratio at 13.6% last week (13.6% over last 4 weeks vs. 11.5% before QE was trimmed in April 2017). We still think the ECB will likely keep CSPP relatively unscathed when they halve their APP in January.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the October monthly budget statement was bigger than expected at -$63.2bln (vs. -$59.0bln). Over the past three months federal receipts are little changed yoy, weighed down perhaps by storm-related weakness in August and September. In the UK, the November Rightmove house price index was up 1.8% yoy (vs. 1.4% expected), but prices in London fell 2.4% yoy. In Spain, the number of home sales rose 11.0% yoy in September.

Looking at the day ahead, a packed 24 hours from start to finish. The data highlights will likely be the final revisions to October CPI reports in Germany and the UK, Q3 GDP for the Euro area (second reading), US PPI for October and the late evening release of Q3 GDP in Japan. Away from the data the ECB’s Draghi, Fed’s Yellen, BoE’s Carney and BoJ’s Kuroda are all scheduled to participate on a policy panel hosted by the ECB. Also scheduled to speak throughout the day are the Fed’s Bullard, Evans and Bostic and the ECB’s Coeure and de Galhau. If that wasn’t enough then politics will also get its fair share of attention with President Trump due to attend the East Asia Summit and UK PM Theresa May’s Brexit legislation the subject of two days of examination in the House of Commons.

http://WarMachines.com

Ray Dalio Goes On Gold Buying Spree, Adds 575% To GLD Holdings, Becomes 8th Largest Holder

Until last quarter, the world’s biggest hedge fund had, curiously, never held a position (according to our records) in any of the most liquid gold ETFs, whether the SPDR Gold Trust, the GLD, or the iShares Gold Trust, the IAU. That changed in the second quarter of 2017, when Bridgewater made its first tentative purchases in the gold ETF space, buying up 577,264 GLD shares, for $68.1 million, as well as 3.1 million IAU shares worth $36.8 million.

That was just the beginning, because as readers will recall, back on August 10 Ray Dalio urged investors to buy gold in case “things go badly.” This is what Dalio said:

When it comes to assessing political matters (especially global geopolitics like the North Korea matter), we are very humble. We know that we don’t have a unique insight that we’d choose to bet on. We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen and treasuries) would benefit, so if you don’t have 5-10% of your assets in gold as a hedge, we’d suggest you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this.

And that’s also what he did, because in the third quarter Bridgewater was very busy buying gold: in fact, according to the just released 13F, after $3.8BN and $2.9BN positions in EM ETFs VWO and EEM, as well as a $1.3BN position in the SPY ETF, Bridgewater’s 4th largest position as of September 30 was GLD, with 3.894 million shares, worth $473 million. In other words, in Q3, Ray Dalio went on a gold buying spree, increasing his GLD holdings by a whopping 575%.

As a result of the surge in holdings, Bridgewater as of this moment, the 8th largest holder of paper gold, known as GLD.

It wasn’t only GLD, however, because Bridgewater also nearly tripled its IAU holdings, increasing its paper iShares gold holdings by 266%, from 3.1 million shares to 11.3 million.

And now that Ray Dalio is rapidly buying up GLD, IAU and other gold holdings, we wonder how long before the momentum chasers send gold, both paper and physical surging, and whether this shift in momentum could potentially impact the ongoing surge in bitcoin.

http://WarMachines.com