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Showing posts with label interest rates. Show all posts
Showing posts with label interest rates. Show all posts

Thursday, April 13, 2017

Over the past 220 years the one key factor in higher gold prices is when inflation is higher than interest rates

Many analysts have been citing the Fed and their new interest rate hike policies as the catalyst for rising gold prices, as well as a few who have been pointing to geo-political events such as Brexit and the Trump election as the key driver of gold.  But the reality of this is that most moves following these events have been fleeting, especially with the central bank's ability to manipulate prices through derivatives and the paper markets.

So if there was one intrinsic data point we could point to that would ensure a near certainty for gold to move higher and higher in price, which one has the historic evidence to back this up?

How about when real inflation is higher than central bank set interest rates.

Chart of Consumer Price Index, 1800-2005

As we can see from the above chart, when the nation was on a gold standard from the start of the Republic to 1913, inflation was relatively flat except for the periods of war (1812 and 1860-1865) when monetary expansion was needed to conduct them.  And even during the time of the industrial revolution in the late 19th century, the set price of gold remained the same as it was in 1792 and where inflation barely grew at all.

It was only after the creation of a private central bank in 1913 that mirrored the ones controlling Europe that inflation really began to take off in America.  And it was this inflation, coupled with a devaluing of purchasing power of the dollar, that forced FDR to raise the gold price from $20 per ounce to $35.

Yet even this increase in the price of gold to keep up with the jump in inflation that took place over the 20 years from 1913 to 1933 was enough to sustain the dollar's purchasing power until the 1960's when the U.S. began to increase the currency's monetary base to pay for the extended war in Vietnam.  And this led to nations beginning to reject the dollar and demand redemption in gold which began to dwindle the nation's gold supply.

And with a smaller gold supply to back the ever increasing currency supply, the gold price was once again raised in 1972 to $42.22 per ounce.

One year later however, the dollar was completely removed from a gold backing and instead backed by the petrodollar agreement which as part of the deal with Saudi Arabia and the OPEC nations, allowed for a tripling of the oil price so that the U.S. could then triple their money supply.  And this is once again seen in the above chart around 1973 when inflation was finally let loose upon the public in an unprecedented way.

Of course we know from that point on the gold price was free to move as the market's saw fit, and as inflation turned into stagflation, and then high inflation (13% by 1979), the gold price eventually rose to near $850 per ounce before Paul Volker and the Fed did something drastic...

The raised interest rates from 11.5% to 21% over the next 18 months.

And with interest rates now finally being above Real inflation, the gold price began to fall, almost in tandem to inflation itself.

During the 1980's and into the early 1990's the Fed kept interest rates relatively high, and well above the rise of Real inflation.  And you can see on the chart that during this period inflation rose moderately and was easily masked by the economic boom that took place during the Reagan years.  But following the 1987 stock market crash, Alan Greenspan would soon take over control of the Federal Reserve and began to lower interest rates from 7.5% to eventually 1% following 9/11, and as such the gold price once again rose in tandem to real inflation being greater than set interest rates.


Image result for gold price chart 1992 - 2008

And ever since 2003, interest rates have never been above 4.5%, and have mostly been below 1%.

So what has been the REAL inflation during that time period?


Chart courtesy of Shadowstats.com

Around 2015 real inflation has begun to rise once again, and the Fed has summarily been forced to embark on a new rate hike policy that started in December of that year.  And even with three rate hikes over the past 18 months, interest rates are not even close to the real rate of inflation, and thus the gold price has remained constant despite the crash in the gold price between 2009 and 2011 when real inflation dropped by more than 50%.

So what does the future hold for gold both now, and in the coming years?  Well the Fed no longer has the ability to raise interest rates above real inflation since U.S. and global debt levels have made it impossible to do so without bankrupting all sovereign nations.  And this means that while the paper manipulators may succeed in holding down the price in the short run, the invisible hand of the markets will always win out, and rising inflation that is greater than central bank interest rates will mean that the gold price cannot help but keep moving up.

Wednesday, March 29, 2017

Rising inflation could be the catalyst to finally send gold price beyond ability for market manipulation

At long last real inflation has emerged in the U.S. economy, with even the Federal Reserve acknowledging it between the lines as they rush to enact up to four interest rate hikes before year's end.  And for gold investors who have suffered through central bank and Wall Street manipulation of the metal's price since the advent of ZIRP and QE, inflation is the best friend of gold and silver and likely to be the catalyst for the next strong leg up in this Bull Market.

Gold is poised to rally to levels last seen four years ago as rising inflation and negative real interest rates combine to boost demand, according to Incrementum AG, which says that the precious metal may be in the early stages of a bull market. 
Prices may climb to $1,400 to $1,500 an ounce this year, said Ronald-Peter Stoeferle, managing partner at the Liechtenstein-based company, which oversees 100 million Swiss francs ($101.5 million). Spot bullion -- which was at $1,249 on Wednesday -- last traded at $1,400 in September 2013. 
Gold has climbed this year as investors weigh risks that President Donald Trump won’t be able to implement his agenda, adding to uncertainty surrounding European elections and the Brexit process. Against that backdrop, investors are on alert for signs of faster inflation, with the Federal Reserve’s preferred gauge jumping recently to near the bank’s target. Policy makers raised rates this month, and kept forecasts showing two more hikes in 2017. - Bloomberg

Tuesday, March 21, 2017

As dollar has fallen 200 bps since Fed rate hike on March 15, gold has climbed more than $50

On March 15 the Federal Reserve announced their second quarter point rate hike in the past four months, and third in the past 15 leading the markets to believe that central bank was finally serious about tightening the cost to borrow money.  However, the reactions from the dollar and gold have been exactly the opposite of what should have been expected due to the Fed's efforts to attack rising inflation, and this has all but revealed that the markets as we used to know them are completely broken.

In just the past six days since the Fed raised rates on March 15, the dollar has plummeted 200 bps on the Dollar Index, and gold has risen every single day to its current position of $1244, which is a climb of more than $50 in that period.

Dollar Chart


March gold chart

Live New York Gold Chart [Kitco Inc.]

Gold chart for March 21

Saturday, March 18, 2017

Fed manipulation vs. economic stagflation: who will win the future over gold and stocks

Going back to at least 2008, if not further back into the 1990's and the Dot Com bubble, markets have no longer run on fundamentals and technicals, but rather on central bank and sovereign manipulations.  And all one has to do is look at the fact that despite corporate earnings declining for seven straight quarters, and most like an eighth here in 2017 Q1, the Dow has not only surpassed 20,000, but its acceleration to 21,000 was the fastest in history.

And now this breaking of market fundamentals by the central banks through their keeping interest rates down to near zero for 10+ years and infusing Wall Street with tens of trillions of dollars in credit has reached a crisis point, and a place where the Fed no longer has control over economic forces.  For the inflation they strove so hard to create in asset prices has now broken through into every facet of the economy, and has returned a monster from the that required extraordinary means to defeat.

Stagflation.

Image result for stagflation monster

In the late 1970's the economy reacted to the U.S. removing the monetary system from the Gold Standard and instituting a new Oil Standard (Petrodollar) by opening the door to massive inflation thanks in part to Henry Kissinger's agreement with OPEC that allowed for the price of oil to be raised.  And this then also allowed the U.S. monetary base to expand by that same amount and more to supply the world with dollars to be able to purchase energy.

This huge increase in the monetary base coupled with the economic slowdown of the middle to late 70's created the then unknown environment that would be labeled as Stagflation.  Stagflation of course is where you have slowing growth coupled with rising inflation.

To defeat this economic dragon, Federal Reserve President and later Chairman Paul Volker had to raise interest rates first from 9% in 1978, to its final top of around 20% in 1981.  And it was only from this that Stagflation was able to be crushed.

But unfortunately today the Fed has no possibility of doing a repeat of this since they and the U.S. government have pushed themselves into a corner by accumulating extraordinary debt.  In 1981 the national debt was around $500 billion, and the Fed's balance sheet was nary a blip on the radar.  However today the U.S. debt is now just under $20 trillion, and the Fed has debt based holdings of over $4.8 trillion making it impossible for them to raise interest rates of any substance since the interest alone on those obligations would bankrupt the country when they are rolled over at higher borrowing costs.

So what does this mean for the economy, for stock markets, for inflation projections, and perhaps the one asset we have yet to mention in this mirror world of 40 years ago?

When stagflation hit the economy beginning in the middle 1970's the one asset that excelled during that time was gold.  Gold went from $106.43 in 1973 (the year of the Petrodollar agreement) to over $850 at its peak in 1980.  This was a rise of 800% in just seven years.

1980
$594.90
29.61%
1979
$459.00
120.57%
1978
$208.10
29.17%
1977
$161.10
20.43%
1976
$133.77
-3.96%
1975
$139.29
-24.20%
1974
$183.77
72.59%
1973
$106.48
66.79%

Looking back in hindsight, Chairman Volker later lamented that the one thing he wished he done differently during the central bank's battle to fight stagflation was to manipulate the rising price in gold, which had acted as a barometer against the dollar, and was a much better safe haven than investors trusting in U.S. Treasuries.  And it was this lesson that Ben Bernanke, and now under Janet Yellen, that the Fed would not forego during their implementation of monetary policies that would inevitably lead us back into the straits we are in today.

Thus we are now at a crossroads since Stagflation has returned with a vengeance and the Fed has little if any ammunition to counter it.  And it is for this reason alone that the real asset winner going forward will be gold over stocks, and we may have seen this start last Wednesday when the Fed's latest rate hike resulted in not even a pothole that slowed down either inflation, or the strong rise in the gold price.

Friday, March 17, 2017

Shanghai Gold Exchange on brink of taking over control of gold prices following VIP meeting and actions after Fed rate hike

In a rushed update put out on March 17 by economic analyst Dr. Jim Willie, it appears that following the Federal Reserve's raising of interest rates two days ago, China, through the Shanghai Gold Exchange, may finally be moving up its plans to wrest control over the gold price from markets in the West.

In a new article published in tandem with his normal monthly Hat Trick Letter, Dr. Willie reported that it appears that the Chinese are now accelerating their plans to disconnect from dollar hegemony following the Fed's recent FOMC meeting and rate hike, and in response to the the market reactions made in the dollar and bond rates following the central bank's March monetary policy move.


Something big is afoot in the Shanghai Gold market. It seems that we are at the door of the RESET finally, with China being betrayed by the USGovt and USFed in concerted collusion. The attempt to reduce the USDollar while maintaining ultra-low bond yields seems the final straw. The inference is made that the jig is up finally, and a significant turning point is upon us. 
A contact at Evolution Consulting has reported that his best contact notified him that VIPs are being invited to take tours of the Shanghai Gold Exchange operation. This man was among one of the guests. These tours are not being arranged in some congenial welcoming event, not at all. Rather they are informational and official in granted preview. They are almost surely being staged to inform the opposition that it is all over for them now. With a cherry on top, the VIP guests were required to pay for the tour. The above juicy tidbit was provided by a client, passing the word along. Something big is afoot. 
China seems to have changed its position toward aggressive in the gold market introduction with gusto and emphasis. Conclude easily that where there is smoke, there is fire, and the heat will be on physical gold metal demand in Asia. In turn the pressure will be put on the USDollar, whose custodians are not honorable and for perhaps the last time, have betrayed the Chinese. Lower USDollar valuation combined with already chronic low bond yield could have turned the Chinese hostile in the wake of the USFed rate hike. 
Analyst London Paul believes something significant is on the verge of breaking the paper gold market. The clues have come on the behavior of the gold market since the Yellen Fed announced its small rate hike. It was small but significant, and probably involved a lie to the Chinese Govt finance ministers. Such coincidences do happen, but odds are against a coincidence in this case, since so critically important. Time will bear out the conclusion. The Western bankers have a long history of lies, deceit, betrayal, subterfuge, sabotage, and pilferage. They might have sacked their economies on the road to the Global Fascist State, but China has not signed up for the destructive evil development and pathway. 
EuroRaj also confirmed London Paul’s suspicion and tentative conclusion. He mentioned that such view is absolutely right, given the market reaction. Someone at the Shanghai Gold Exchange spiked the price higher the moment the Fed raised rates, which required the paper market to follow higher. He stated unequivocally that the Chinese do not consider the USFed, the banker cabal, and the US Elite as honest business partners any longer. He expects their harsh clear revenge to follow, with the launch of the long awaited Global Currency RESET to come next. US President Trump visiting the Andrew Jackson grave site was another sign, as Jackson was an arch-enemy of the banker cabal. He survived an assassination attempt. Neither Trump nor China wanted the rate hike. Trump does not want higher USGovt borrowing costs or the added economic headwind. China does not want lower bond principal value and lower USDollar value. Hence the East appears to have burned the Western banker cabal with a paper fire that could turn into a bonfire in gold metal demand. China likely perceived a maneuver to sabotage Trump by the banker cabal, and the Beijing leaders yelled PUNT, game over, no more cooperation. 
At least in the Eastern hemisphere, the USDollar is about to be kicked to the curb, shunned in trade payment usage. The non-USD platforms will be given much greater emphasis. The game is about to change, to enter the extreme danger zone. - Goldseek
Yet even this new information doesn't take into account the sudden exit from the London Silver Fix last week by the CME Group and Thomson-Reuters, who may have also seen the writing on the wall that the West is losing control over the manipulation of gold and silver prices, as well as bond yields for the U.S. Treasuries.

It was said by many that March 15 would be a critical date for the economic, financial, political, and geo-political spectrum's, and that the Ides of March may show itself in mysterious and unpredicted ways.  And going forward with the Fed raising interest rates at a time when economic data is screaming that the U.S., if not the rest of the world is bordering on recession, the reality that the time of protectionism and all countries looking out for themselves may very well be upon the global financial landscape.

Thursday, March 16, 2017

Gold price surges back over its 50 and 100 day moving average following Fed rate hike

Immediately following the Fed's announcement that they were raising interest rates a quarter point on March 15, both gold and silver shot up higher with the yellow metal gaining $22.00 into the close, and following this up with another $7 move early in Thursday trading.

While slightly dropping below it's March 7 position of $1230 from a week ago after the strong move up yesterday, gold nonetheless has gone back above its 50 and 100 moving day average and appears set to rise more based on the Fed's inadequacy in explaining to the public why they chose to raise rates with the economy signalling slow growth and possible recession.

Live New York Gold Chart [Kitco Inc.]
Gold is above its 50- and 100-day moving averages and $1225, and Silver is above $17

Wednesday, March 15, 2017

Bitcoin is no longer the only crypto on the block as Etherium's currency Ether crosses over a $2 billion market cap

Ever since the creation of the crypto-currency Bitcoin came into the public sphere in 2009, dozens of other alternative digital currencies have attempted to follow Bitcoin's success.  But only one of course has made that critical leap into widespread confidence and acceptance, causing governments, markets, and even retailers to adapt to its growth.

Until now.

On March 14, just one day before the U.S. government faces a new debt limit crisis and the Federal Reserve is to decide upon whether to raise interest rates, a crypto-currency other than Bitcoin has reached a milestone by becoming only the second digital currency to achieve a market cap of over $2 billion.

Image result for bitcoin and ether coin
A digital currency called ether has hit a record high market capitalization of more than $2 billion, a milestone only bitcoin has managed to pass. 
One ether currently trades for around $29, hitting a high of over $30 on Monday, according to price tracking website CryptoCompare. 
The figure marks an increase of nearly 20 percent from a week ago. The market cap of the cryptocurrency has surged from $1.8 billion to more than $2.57 billion in the same period. 
Ether was introduced in 2013 and runs on the Ethereum blockchain through the use of an underlying technology that is different to the one that powers bitcoin. - Russia Today

Sunday, March 12, 2017

As central banks lose control over inflation, and manipulation of metals slowly ends, what is the real price of gold and silver

In the late 1970's central banks lost control over inflation forcing New York Fed President Paul Volker to push for a boosting of interest rates beginning in 1978.  In fact, during a six month period in that year, rates were increased 2% to a level of 9%, only to find out that inflation still continued to climb.

A year later inflation was raging at a level of 13%, and following President Jimmy Carter's firing of several people in his cabinet, declining confidence in the dollar led to gold shooting up an unprecedented $300 an ounce in a short amount of time.

Gold of course would go on to reach a then historic high of around $850 per ounce until Volker, who would become the next Chairman of the Fed under President Ronald Reagan, took the ultimate step of raising rates from 9% to 20% between late 1979 and 1981.

The moral of this story is that once inflation gets away from central bankers, only a move of raising interest rates to extreme levels will have any chance of taming the inflation monster, but at a cost to the general economy, as well as the stock markets.

Fast forward to 2017...

On March 10 central bankers in Japan and Europe both hinted that they may now be forced to end their policies of ZIRP and could soon commence on monetary policies of raising rather than lowering interest rates because the inflation they have been masking for the past nine years has begun to rise precipitously similar to what occurred in the U.S. economy during the 1970's.  Added to this was what the market titled 'Bond King' Bill Gross said about the 10-year Treasury, that if it reaches and stays above 2.6% it will mean armageddon for almost everything.
Investors need to watch only one number in 2017 to figure out what returns are going to look like across the various markets, bond guru Bill Gross said Tuesday. 
Whether the 10-year Treasury yield crosses the 2.6 percent mark will be critical both to the bond market and to stock prices, the fund manager at Janus Capital wrote in his monthly report for clients. The yield was around 2.39 percent Tuesday morning. Higher yields reduce a bond's face value. 
"If 2.6 percent is broken on the upside ... a secular bear bond market has begun," Gross said. "Watch the 2.6 percent level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important than dollar/euro parity at 1.00. It is the key to interest rate levels and perhaps stock prices in 2017."
Gross said the 10-year yield has been in a downward trend line since 1987. If that channel is broken, look out. 
"Investment happiness and/or despair may lie ahead over the next 12 months depending on it," he said. - CNBC

This week will see at least two, if not three or more important financial, economic, and political events occur that will have tangible effects on interest rates, inflation, gold and silver, as well as the overall economy.  These include but are not limited to:  The debt ceiling vote, the Fed's FOMC meeting and announcement, and elections in the Netherlands which could bring another anti-euro and anti-EU candidate to a presidency.

All if this of course is almost meaningless in regards to the potential of inflation moving into a higher gear no matter what the central bank does monetarily, and the Congress does fiscally.  Because through our 100 year plus virtual fiat currency system, where the purchasing power of the dollar has lost over 97% of its value, what would the price of gold and silver be if that inflation completely disconnects from any chance of central bank or government control?

Earlier today on March 12, Matterhorn Capital Management head Egon Von Greyerz laid out a chart of what the actual price of gold and silver should be today using dollar terms if the cost of inflation had been, and was allowed to effect money and asset prices.  And in his charts going back 300 years of actual inflation (not reported or manipulated), then gold today would be around $14000 in 1980 dollars, and silver above $650.
The 300-year chart of gold adjusted for real inflation shows that gold is now at the bottom of the range. Even more interestingly, the $850 top in January 1980, adjusted for inflation, would be $14,463 today.
300 year gold price
The 300-year silver price chart, adjusted for real inflation confirms that the 1980 $50 top would be $669 today. - News.gold-eagle
300 year silver price

Many will say that these prices are absurd, and that central banks will always have the ability to control and manipulate gold and silver markets, as well as obfuscate the reporting of real inflation.  But all one has to do is look back to 2008 when they had to come hat in hand for a taxpayer bailout to save the entire global financial system, or in 1980 when it took extreme measures that are impossible for them to do today regarding interest rates because of how high the U.S. and global debt levels are, and you will see that if the scenario of out of control inflation is already set, then it is only a matter of time now before they lose control over all prices and assets, and gold and silver will very quickly spring back to their equilibrium true values that will not just leave the metals unaffordable, but damn well completely priceless.

Thursday, February 23, 2017

Gold price hits 15 week high as it crosses over $1250 for first time since just after election

On Feb. 23 the gold price rose more than $10 per ounce to cross $1250 for the first time since just before Donald Trump won the Nov. 8 Presidential election.

Prior to that election, gold had once again crossed over $1300 per ounce, something it had not done since its massive move last June following the Brexit vote in the UK.  But with the outcome of the ultimate outsider winning the highest office in the land, markets dumped gold contracts en masse which would eventually see the price fall into the low $1100's.

But since the beginning of year, both gold and silver have slowly risen, and are nearing gains of around 10% in just the first two months of 2017.
Gold prices jumped Thursday, attempting to snap a string of three declines, as the dollar lost ground to chief rivals in the wake of a fuzzier-than-expected interest-rate assessment from the Federal Reserve. 
April gold GCJ7, +1.33% rose $10.80, or 0.8%, to $1,244.10 an ounce. A close at that level would mark the highest settlement for a most-active contract since Nov. 10, 2016, according to FactSet data. Thursday’s gain picks up on an after-hours Wednesday rise and dollar decline. Some metals traders read the Fed minutes out Wednesday as casting doubt on the timing and pace in future rate increases. - Marketwatch

Tuesday, September 27, 2016

Following Trump's winning most polls after the first debate, sentiment continues to be long towards buying gold

Following last night's first debate, the internet is wild with discussion and propaganda over who won, and who lost in New York last night.  But with the majority of online polls showing Trump winning by a relatively large margin, sentiment for gold continues to remain very high due to his increased odds of a victory.
Ahead of the first US presidential debate on Monday, Citigroup issued a warning alert of investors rushing into gold as the Republican nominee Donald Trump’s chances of becoming president have surpassed the 40pc mark. 
Previously seen as an unlikely winning bet by the majority of market participants throughout most of his campaign timespan, Trump is now expected to capitalize on his economic reform agenda, attracting voters yearning for change. As the chances of economic shift rise with Trump’s ascend, you can never be too safe, investors reckoned, rendered gold poised for gains in value closer to the yearend. 
Trump’s victory in November would mean a sooner interest rate hike by the Federal Reserve, with subsequent hikes to follow shortly as the Trump administration would be primarily focused on achieving economic normality. Amid the expected rate hikes, the stock market is likely to retreat, along with the value of many assets across multiple sectors of the economy. Bond yields would rise, whilst the fixed-income value would slip, a notion amongst investors spreads. Buying gold seems, therefore, a viable solution to offset the upcoming risks. “Polls have started to tighten ahead of the US presidential election, and Citi has raised the probability of a Trump victory,” Citi said in a note. 
“We expect a Trump win would bring out higher volatility in gold and forex, which in turn should lead to higher volumes in other precious metals.” - Sputnik News
Drudge
New Jersey.com

Time Magazine

Fortune Magazine


The Hill


CNBC


Wednesday, September 21, 2016

Gold climbs on Bank of Japan's failed policy shift while markets wait for Fed rate announcement

Last night, the Bank of Japan failed to impress when they announced that there would be no change to their current interest rate level of -.10.  And as expected gold rose more than $10 per ounce with today's Federal Reserve announcement still to come at 2:00pm EST.

In reality there is little that most central banks can do except change course and raise interest rates since several have already gone negative, and ongoing stimulus programs are yielding little towards spurring economic growth.  But what has been the beneficiary of these central bank policies has been gold, with the monetary metal bouncing off its 100 day moving average on the BOJ's announcement alone.

Gold and silver are surging this morinng after BoJ's disappointment as a stronger yen weighs on the USD index. Heavy volume has lifted Gold off key technical support and silver through a major technical resistance... 
Gold bounces off its 100-day moving-average...
 

Monday, September 19, 2016

As the Fed prepares for interest rate decision this week, recent history shows gold to climb no matter which way they go

In the past one could accurately predict what would happen to the price of gold when the Federal Reserve chose to move interest rates either higher or lower.  But with the markets now fully manipulated from the central bank's use of QE and stimulus, and both stocks and bonds in over-priced bubbles, rationality and fundamentals no longer are relevant.

In recent history, gold has more often than not risen no matter what the Fed has done because the markets are ruled in large part now by uncertainty.  When the central bank began its five year move of lowering interest rates back in 2010, and printing money to buy bonds, stocks, and any and all assets they could get their hands on, the markets had supreme trust in the Fed, and it was reflected in the drop in gold from an all-time high of $1940 to its pre-December 2015 low of $1045.

But as we have seen for the last 10 months, every time the Fed issues a formal statement to either raise rates (December 2015), or make no changes (All of 2016 to date), gold has responded in kind to the upside.

January 27 FOMC Meeting - Gold Up



March 16 FOMC Meeting - Gold Up



April 27 FOMC Meeting - Gold Up



June 15 FOMC Meeting - Gold Up



July 27 FOMC Meeting - Gold Up



September 21 FOMC Meeting - Gold ?

So when interest rates were raised in December of 2015, the gold price went up.  And subsequently after every single FOMC meeting this year, the price also went up when they did nothing.

Interest rates are still near zero, with the Fed desperately afraid to both raise them up prior to the election, or lower them down into negative territory like in Europe and Japan.  And it is in part to this schizophrenia and loss of confidence in the central bank that will very likely keep gold prices going up for the foreseeable future.

Tuesday, September 6, 2016

Despite declines in gold price in August, demand for the metal hit a four year high

Now that the summer market doldrums are over following the turning of the calendar on Labor Day, gold is acting as it normally does heading into its biggest price months of the year.

In fact, so far on the first trading day in September, gold is up over $14 and should go much higher very soon since economic data from manufacturing just about assured there will be no Fed rate hike when the FOMC meets later this month.

Live New York Gold Chart [Kitco Inc.]

Yet despite the fact that gold lost some of its gains during August, an interesting statistic emerged on Sept. 6 which puts alot into perspective for the rest of the year.  And that is that demand for gold by individuals hit a four year high last month, meaning that new support is now in the market to take gold much, much higher.
Private investor appetite for gold hit a four-year high last month, swelling net purchases on the BullionVault trading platform by almost half a tonne. 
The financial jitters triggered by the Brexit vote and record low interest rates have spurred demand for the safe-haven commodity over recent months, driving total holdings at BullionVault to 35.7 tonnes. 
Although the number of private buyers slipped 6pc in August, those willing to reduce the holdings they have built up over summer dropped 49pc to boost the net demand. 
As a result BullionVault's Gold Investor Index up to a new 3-year high of 56.0, reaching its highest level since April 2013 from July's 53.4 reading.
Adrian Ash, head of research at BullionVault, said: “Private investors continue to grow their gold holdings against a trend of both rising prices and rising financial risks. 
“Last time net gold investing demand was this strong, prices were retreating hard from the late 2012 rally. August 2016 in contrast marked the fourth time running that average monthly gold prices rose against the dollar, a pattern not seen since the metal peaked with the global financial crisis in summer 2011." - Telegraph

Wednesday, July 13, 2016

Gold rally to continue as higher prices will spark new buyers to jump in the already tight market

A new report out on July 12 suggests that the ongoing gold rally will not only sustain itself going forward, but will spark much higher prices as new buyers come into the already tight market.

Analysts from both UBS and Credit Suisse are in agreement that the gold bull market has barely begun to move because the amount of investors and buyers have been very limited so far.  And they assess that once the price breaks through a certain point, it will spark an unlimited amount of buyers who see gold as a much more secure bet in today's environment of negative interest rates and helicopter money.

Gold Rebound Linked to Fall in Interest Rates
It’s been a stellar six months for gold investors. The yellow metal has surged 28 percent year-to-date, its best first half of the year since 1974, and there are signs that the rally is just getting started. That’s the assessment of analysts from UBS and Credit Suisse, who see gold entering a new bull run. According to UBS analyst Joni Teves, gold could climb to $1,400 an ounce in the short term on macroeconomic uncertainty, dovish monetary policy and lower yields. 
“These factors,” Teves writes, “justify strategic gold allocations across different types of investors” and should encourage hesitant investors to participate. 
Joining UBS in forecasting further gains is Credit Suisse, which sees gold reaching $1,500 by as early as the start of next year. As Kitco reports, Credit Suisse analyst Michael Slifirski writes that “the surprise Brexit vote has solidified and intensified macro and political uncertainty and extended the time frame for a negative real rate environment in the U.S. and potentially abroad.” 
This is precisely what I told BNN’s Paul Bagnell this week, using Canada as an example. The Canadian 10-year yield is sitting just below 1 percent, while inflation in May came in at 1.5 percent. When we subtract the latter from the former, we get a real rate of negative 0.5 percent—meaning inflation is eating your lunch. Like negative bond yields, negative real rates have in the past accelerated momentum in gold’s Fear Trade. - Forbes

Thursday, June 16, 2016

Gold shoots through $1300 following the Fed's capitulation for raising interest rates

It took approximately a month and a half to recover from the cartel's last smackdown of the gold price to reach and surpass $1300 per ounce, but thanks to Janet Yellen and the Federal Reserve's capitulation to not raise interest rates at yesterday's FOMC meeting, gold has once again breached that resistance level and is on its way towards new 52 week highs.

I think the first rate hike cycle is over. What Janet Yellen said in response to my question, and if you look at what has happened to the rate hike cycle, is pretty profound. It’s as close to the Fed getting to capitulation as I’ve ever seen, about the efficacy of Fed policy, about the outlook for the economy. - Steve Liesman, CNBC
Perhaps what was most interesting about yesterday's FOMC decision not to raise rates was the fact that for the first time in many months, there was not a single dissenting voice as the choice to do nothing and leave rates where they are occurred with a unanimous vote.

Despite Yellen's usual rhetoric in saying everything and meaning nothing in her followup to the FOMC announcement, the underlying reality is that central banks around the world are running scared of deteriorating economic and financial conditions that threaten the banks, bond markets, and economic growth.  And this is why hedge fund managers money managers, and billionaires like George Soros are shorting the stock markets and buying into gold since they recognize it is the only real safe haven for what is coming.

Tuesday, May 24, 2016

World's largest asset manager tells clients to buy gold

Last week, the world's largest asset manager (Blackrock) published a communique to their clients posing the question, Are these the golden days for gold? And in the article the institution that manages $4.2 trillion for clients answered it with a resounding yes.

Blackrock is the latest billionaire funds to go positive on gold buying, joining the likes of Stanley Druckenmiller and George Soros who both took large positions in the precious metal in recent weeks.


“Given slow growth, a cautious Federal Reserve and the proliferation of negative sovereign yields in Japan and Europe, U.S. real rates are likely to remain low for the foreseeable future. At the same time, both core inflation and wages have been firming while the inflation drag from last year’s strong dollar and collapse in oil is beginning to fade. This is exactly the type of environment that has historically been most favorable to gold.” 
Blackrock believes that the “unusually low level of  real interest rates (i.e. after inflation)” now make the asset class of gold a potential remedy: “All told, this is a serious problem for yield starved investors. Ironically, one potential remedy is to take a second look at an asset class that provides no income: gold.” - Blackrock via Zerohedge

Friday, May 6, 2016

Bad jobs report good for gold and bad for dollar as expectations of Fed hike diminish

Ever since the Federal Reserve raised interest rates by a quarter point last December, analysts have been forecasting between two and four more rates hikes in 2016 as the assumption that the economy is now 'doing well' has skewed expectations despite the real data denoting the world is in a global recession.

On May 6, these analyst assumptions took a massive hit as job numbers for April came in more than 40,000 less than expectations and the chance of a rate hike taking place in June, or the rest of the year, suddenly plunged to near zero.

What this means in the long run for both gold and the dollar is that it may be more likely that the central bank must change course and now put in a rate drop, as well as more quantitative easing back on the table, which will cause the dollar to weaken and gold to continue its rise as people and investors look for safe havens from Fed impotence.

As the global uncertainties have gripped the major economies of the world, most assets have lost their attractiveness to investors. Only gold’s allure remains, and we’ve seen a rally in precious-metal-based funds and other related investments. 
The Federal Reserve remained shy about a rate hike owing to the downward sticky inflation numbers that fail to give muscle power to the central government. While the inflation numbers run below the target 2%, the personal consumption expenditures index rose 1.3% in January year-over-year. The core inflation increased 1.7%, but the prospects for the same measure remain unchanged. The GDP (gross domestic product) growth expectations have also dropped since December. - Market Realist

Friday, April 29, 2016

Guest Post: Gold and Negative Interest Rates

Guest Post - Dan Popescu, Goldbroker.com

gold and negative interest

We hear more and more talk about moving into negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks the question as to what tools the Fed has left to support the economy and discusses in this article the use of negative rates. We have to first define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest from the nominal rate we have to subtract inflation. That’s what we call the illusion of inflation.

real effective fed funds rate

Real interest rates have been negative fairly often, including for most of the period since 2009. The problem then comes in choosing the appropriate measure of inflation. Since the calculation of inflation is highly subjective and easy to manipulate I came to adjust nominal prices to gold to get the real interest rates. In the chart below you can see nominal U.S. 10-year Treasury rates versus gold-adjusted rates since 1962.

US 10 years tresury rates

Ben Bernanke says in his article that, “The fundamental economic constraint on how negative interest rates can go is that, beyond a certain point, people will just choose to hold currency, which pays zero interest. (It’s not convenient or safe for most people to hold large amounts of currency, but at a sufficiently negative interest rate, banks or other institutions could profit from holding cash, for a fee, on behalf of customers). Based on calculations of how much it would cost banks to store large quantities of currency in their vaults, the Fed staff concluded in 2010 that the interest rate paid on bank reserves in the U.S. could not practically be brought lower than about -0.35 percent.”

In Japan, the European Union and Switzerland, where negative interest rates are already there, an increased demand was observed for safes and cash. When negative rates took effect in mid-February in Japan, queries about home safes surged, especially from customers aged 50 and over. Sales of safes are now running some 40 to 50 percent above this time last year, according to a Reuters’ article. In the European Union Reuters reports the same trend. The European Central Bank's negative interest rates are sparking demand for safe deposit boxes, where bank customers can store cash to avoid the prospect of paying the bank interest on their accounts, said German bankers to Reuters. The same trend was observed recently in Switzerland, not only with private investors but also with pension fund managers.

At the same time, we learn that negative rates have boosted demand for gold in Japan. According to Takahiro Ito, chief manager at Tanaka Kikinzoku Kogyo K.K.’s store in Tokyo’s Ginza shopping district, “Many customers are wagering that it’s better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates,” reports Bloomberg. Consumer gold demand in Japan rose to 32.8 metric tonnes in 2015 from 17.9 tonnes a year earlier, also reports Bloomberg in the same article. Gold bar sales climbed by 35 percent to 8,192 kilograms in the three months ended March 31 from a year earlier, Tanaka Kikinzoku Kogyo K.K., the country’s biggest bullion retailer, said, according to Bloomberg.

A boom in safe-deposit-box companies was also observed in Switzerland in the canton of Ticino, according to another Bloomberg article. The rise of safe-deposit boxes has created a boon for jewelers along Lugano’s Via Nassa, home to Cartier, Bulgari, and Bucherer boutiques, as people race to convert cash into assets they can lock away. Bloomberg reports that, “Investors are buying more gold as an alternative to holding Swiss franc cash deposits, according to Vontobel Holding AG, a Swiss bank and wealth manager… “We keep noticing that gold is coming back into favour with investors,” said Vontobel’s Chief Executive Officer Zeno Staub.”

Gold in a negative interest environment is the best way to store large amounts of cash. A gold coin of 1 once (31.1 grams) stores about $1,230 while a one-kilogram bar of gold stores about $39,620 today and is just about the size of your palm. With the threat of banning cash and with the one-hundred-dollar bill being the largest denomination, both in the U.S. and Canada, you can easily see the advantage of holding gold in a safe or under the mattress. In the European Union there is also talk of banning large euro denominations like the 500-euro bill.The largest denomination in the UK is just 50 pounds.

gold bar

But negative interest rates also increase the cost of doing business for the banks, which find it hard to pass on those costs to borrowers, therefore weakening the banking system. This has the effect of encouraging people to buy gold and hold it outside the banking system despite the inconveniences. It is for this reason some economists are associating negative interest rates with a ban on physical currency. In order to impose effectively negative rates, you must have control of people’s cash. The state can easily control access to electronic money by limiting the amount of withdrawal from the banking system just with a small adjustment in the software. The state can stop printing fiat money but it can’t easily ban physical currency like gold and silver. It is estimated that there is approximately 20% of the above-ground gold in private hands and in the purest bullion form. A large part of the jewelry stock can also be used, if necessary, as cash.

Above ground stocks of gold

Today in this negative interest rate environment you should be more concerned about the return of your money, than the return on your money. Compared with negative interest rates it is obvious why people are rediscovering the value of holding gold. Gold tends to perform well in declining or negative real interest-rate environments. The more central banks move to negative rates, the more gold is going to take off because there's no carrying cost. High real rates are bad for gold while negative real rates are good for gold.

Real rates & gold

3 months real rates & gold

3 motnhs real rates & gold since 2006

Sunday, March 13, 2016

Yale academic believes global economic crash is just months away

According to Yale’s Vikram Mansharamani, the global economic collapse is just months away despite the fact that mainstream pundits are discounting even a slight recession, much less a financial crash.  And at the heart of his analysis is the fact that the credit bubble that has been fueled by central banks over the past several years has finally reached a peak where nearly everything is artificially inflated, and the point of no return has been already crossed.


FINANCIAL bubbles across the globe are imploding and the problem is only set to get worse... Prices are falling around the world thanks to the collapse of China’s debt fuelled economic growth and this has triggered a succession of disastrous events that are starting to be realised, according to Vikram Mansharamani, an author and, lecturer at Yale University. 
Fears are growing that the world could face a financial crash of unprecedented levels and could even be just six months away. 
Bubbles created by the mountain of cheap money made available by low interest rates since the last financial crisis are now starting to burst, said Mr Mansharamani. 
Mr Mansharamani added: “We’ve got a bubble bursting, I would argue, in Australian housing markets — that is beginning to crack; South Africa — the whole economy; Canada — housing and the economy; Brazil. We can keep going on and on.” - London Express

Friday, March 11, 2016

On same day European Central Bank fires massive stimulus to bail out banks, gold reaches highest price in 13 months

Make no mistake, yesterday's new policies from Mario Draghi and the European Central Bank (ECB) were a last ditch attempt to fight against deflation, and perform a backdoor bailout of several insolvent banks.  And what was most interesting was how the markets reacted in a way which shows that no one trusts central banks anymore to be competent to resolve economic problems, and this was seen inexplicably in the Euro currency and in gold prices.

In fact, going through the end of U.S. trading and into the first few hours of Asian trading, gold soared to its highest level in 13 months, hitting an intra-day high of $1282.

gold_euro_march_2016
Gold prices climbed to a 13-month high in dollar terms overnight ($1,282.51) after the increasingly adventurous, dare one say reckless, European Central Bank unleashed its latest ‘bazooka’ and initiated more interest-rate cuts, a significant extension in currency printing and bond purchases and also a potential subsidy to banks lending. - Goldcore