Gold has hit the ground running in this young new year, a stark contrast to its brutal post-election selloff. Rather remarkably, these strong recent gains accrued despite literally zero buying from one of gold's most-important constituencies. The American stock investors who almost single-handedly fueled gold's strong bull market last year are still missing in action since the election. That means big gold buying is still coming. All free-market prices, including gold's, ultimately result from the balance between popular supply and demand. When supply outweighs demand as evidenced by investment-capital outflows, gold is forced lower. That's exactly what happened after Trump's surprise win in early November. When investors flee gold for any reason, including chasing record-high stock markets, the resulting oversupply really hits prices. When the votes started to get tallied on Election Day's evening, Trump pulled into a surprise lead in the biggest battleground state of Florida. Gold futures rocketed higher on that, soaring 4.8% to $1337 as the early results came in! But as the plummeting stock-market futures reversed sharply the next morning, that panic gold buying was quickly unwound. That kicked off investors' subsequent mass exodus from gold.
In September Janet Yellen gave a speech in Jackson Hole, Wyoming titled “Designing Resilient Monetary Policy Frameworks for the Future.” That title at least suggested that some new thinking and new policies might be on display. They weren’t.
Yellen basically said that interest rate cuts, quantitative easing, interest on excess reserves and forward guidance were sufficient to pull the U.S. economy out of a future recession if needed.
In short, Yellen said the Fed’s existing toolkit is adequate, and is unwilling to consider more radical tools or remedies. The real lesson was that if you like weak growth, money printing and market manipulation, get ready for more of the same.
She dismissed the idea of negative rates. She also agreed that “helicopter money” (really fiscal policy supported by Fed bond purchases to finance deficits) could be useful, but
An economy that only serves the prosperity of the protected top 5% is an economy doomed to rising inequality, stagnation and widespread social discontent. If we seek a coherent context for the new year, we would do well to start with the foundations of widespread prosperity. While the economy is a vast, complex machine, the sources of widespread prosperity are not that complicated: abundant work and a low cost of living.
When work is abundant, there are opportunities for many skill levels, and employers must bid for the most productive, reliable workers. This supports wages and widespread employment. When the cost of living is low, even low-wage households can not only get by but put a little aside if they are prudent and thrifty. This may seem obvious, but the conditions required for work to be abundant and the cost of living to be low are not so obvious. For work to be abundant, it must be easy to start a business, easy to operate the new business, easy to make a profit so the business can survive the first few years and easy to hire employees.
Back in August 2015, I noted that Goldman Sachs and HSBC had taken delivery of a huge tonnage of physical gold, probably purchased near the lows. Physical bars of gold are, by definition, a very long term investment in the yellow metal. At the time, the two banks were telling clients and others not to buy gold, even as they were loading up on it, themselves.
Let’s fast forward…
Starting in December 2015, JP Morgan began buying tremendous quantities of physical gold, as opposed to paper/electronic gold futures...CC
The end of one year and the beginning of another is always the time to reflect and look forward. 2016 was a tale of two separate years. The first half (which followed the Fed’s rate hike) saw unsettled markets. Equities around the world looked like they were unravelling in Jan. and early February. Sovereign credit markets were generally firm while gold and silver took off like scalded dogs.
Then in the middle of the year, equities rebounded, interest rates started to rise while the gold and silver rallies were contained. Interestingly, the mining shares which were at one point in May, up 150% ytd, are still up roughly 50% but have been crushed anew. The second half and in particular the last quarter has seen interest rates all over the globe begin to rise fiercely. I believe this is THE most important event of 2016, the end of a 35 year bull market in “credit”!
As we end the year, there is nearly no “RISK premium” anywhere to be found. In fact, the mainstream explanation for higher rates is the “reflation” trade, I disagree. I believe the higher interest rates are a function of liquidity tightness. The old debt/growth leading to more debt/more growth circle has been broken because “debt saturation” levels have been reached. The central banks are stuck as they have cornered too much collateral and are now being forced to look at other markets (including equities) to onload to their balance sheets. Risk premium serves a very important purpose in “pricing” assets. Central banks have tried to negate this concept and have only created a scenario of “premium” nowhere and “risk” everywhere. In a world with more debt and the worst debt ratios ever, risk is unaccounted for.
Truthfully, I’m disappointed the Fed raised interest rates last week. I expected as much, though, as I wrote in a previous dispatch, I saw reasons why a rate hike would be ill-advised and should have been avoided.
There are simply too many deleterious impacts on massively indebted U.S. consumers, American multinational companies slammed by the strengthening dollar and emerging market economies that have taken on trillions in dollar-denominated debt that’s getting more and more costly. Those impacts will come home to roost soon enough…
Echoing some points we've made here recently, today GATA Secretary/Treasurer Chris Powell slams the pathetic rock-breaker CEOs of mining companies for failing to understand the forces aligned against their companies. In doing so, these short-sighted geologists harm not only their companies and employees but their shareholders, too.
Please be sure to read Chris' post AND please be sure to support GATA as they are an indispensable ally in the fight against the corruption and fraud of The Bullion Banks and their co-conspirators in government and the media.
"Why Invest In The Monetary Metals and Their Miners If They Won't Defend Themselves?"
by, Chris Powell, Secretary and Treasurer of GATA
The more it exposes and documents manipulation of the monetary metals markets by governments, central banks, and their agents in the financial industry, the more GATA is resented by those in the monetary metals industry who are merely touters of mining shares.
The “golden constant” is the idea that gold holds its purchasing power across centuries, with fluctuations along the way. But the gold price has...
... China and India alone contain 36% of the bipedal creatures known as humans that occupy this planet. And they love gold more than most of the rest. And they’re getting richer faster than almost anyone else....
Gold and the gold miners are out of favor, for now. However, a situation almost identical to the one which the precious metals sector faced last January appears to be repeating; expectations are so low that almost any catalyst could trigger a rally. I expect the sector to drift sideways to lower through year end and while shrewd investors might be able to pick up some absolute bargains during the final days of 2016 (particularly among the juniors), I doubt there is any hurry to rush in and buy. The good news is...
The news that mainstream media fears to report is that price fixing is not some conspiracy theory. Of all the economic metrics manipulated by governments and banks, including interest rates and stock markets, the gold price is the one governments must control at all costs to stay in power.
There seems to be some new, seemingly crazy, action by the PM Modi administration in India every day. Last month, for example, they capriciously demonetized the primary forms of cash used commercial transactions in India. It was a stupid thing to do. At the least, it was carried out in a very incompetent manner. It led to chaos, as banks and citizens ran out of cash. Some truckers were even unable to find sufficient cash to pay for fuel and had to abandon deliveries. It was a bit crazy… and economists now expect the demonetization of 86% of India’s money supply to cost several GDP percentage points. Not the smartest way to a run a country. Certainly not a wise method of developing one.
Once someone gets a bad reputation, like that, it is easy for people to believe the worst about him. Whether he deserves it or not, Indian PM Modi has gained the reputation of a madman, or a fool in some western business circles.
By Turd Ferguson | Tuesday, January 17, 2017 at 12:02 pm One of the primary themes that we've been repeating is that 2017 is going to be a wildly unpredictable year. To that end, today we begin what might be a wildly unpredictable week. Buckle up.
So, let's see. What are some of the primary tenets of the heavily-promoted "Generally Accepted Narrative"?
Major US deficit spending will promote economic growth This economic growth will allow The Fed to hike the Fed Funds rate 3-4 times Rates on the long end will rise, too, as "the bond bubble bursts" All of this growth and higher rates will prompt a huge rally in the dollar And the US stock market will charge toward 25,000 on the Dow.
If we refuse to recognize the high utility value of USD and its global ease of flow, then we will continue to misunderstand the demand for the dollar and its appreciation. I have covered the many reasons why the U.S. dollar (USD) has strengthened in dozens of posts over the past 5 years, (Could the U.S. Dollar Rise 50%?, January 12, 2011), and I described the positive dynamics of bitcoin last summer in An Everyman's Guide to Understanding Cryptocurrencies (June 13, 2016), back when bitcoin was under $600.
The USD (as measured by the US Dollar Index) has gained almost 40% from 73 in 2011 to 102 recently, and bitcoin recently topped $1,000 (trading at $909 as this article goes to print).
Profits are faltering for structural reasons that are not easily resolved.. The bedrock assumption of the Bull market is that corporate profits will keep rising indefinitely. Hiccups are allowed, but current stock market valuations are implicitly based on profits expanding. The fly in the ointment here is corporate profits have been stagnating since 2014. Here is the St. Louis Federal Reserve (FRED) chart of pre-tax corporate profits:
By Valentin Schmid The Epoch Times, New York Thursday, December 29, 2016
There are people who think the financial system based on the dollar will collapse sooner rather than later. For this event, they are hoarding gold, silver, and sometimes guns and canned food.
"If people lose confidence in the other forms of money, they'll go to gold," said James Rickards, author of "The New Case for Gold."
"Sometimes gold rallies because it's an inflation hedge, which it is, but gold can also be a deflation hedge. But most importantly gold is money, and when I see the dollar price of gold going up in this environment, it tells me that people are losing confidence in central banks, thinking of gold as money...
"Fake news" is of course the staple of marketing products that end up killing the unwary consumers who buy the hype. The classic example is the cigarette/ tobacco industry, which ran adverts for decades proclaiming absurdities such as the health benefits of smoking (other than dying a horrible, needless death), the "fact" that doctors preferred one brand of cigarette over the other brands, and so on. The industry famously went to truly monumental lengths to hide the facts about the destructive consequences of smoking from the public, and aggressively attacked any evidence that smoking was remarkably unhealthy as "unscientific," i.e. beating back the truth with The Big Lie.
The BEA’s report on Personal Income and Outlays for November was not exactly what the cheerleaders expected or the Fed Wants. Income was flat, price pressures were nonexistent, and spending was weak. 2016-12-22_12-10-27 The Econoday consensus estimates missed across the board. Moreover October was revised a bit lower, effectively making the numbers worse. ...
if you create and distribute money only in the apex of the wealth/power pyramid, it can only benefit the few rather than the many. There are numerous debates about money: what it is, how we measure it, and so on. In recognition of these debates, I'm referring to "money" in quotes to designate that I'm using the Federal Reserve's measure of money stock (MZM).
Nowadays, "money" is often credit. We buy stuff not with currency/ cash, but with credit extended by lenders. The government pays for its programs with borrowed money as well, by selling sovereign bonds and spending the proceeds. So to get a rough measure of the expansion of "money," we look at money stock and total credit.
Money manager Michael Pento says don’t get too comfortable with the record highs in the stock market. Pento warns, “In December of 2015, the Fed raised rates. It was the first time in a decade. From the middle of December to the end of December (2015), it was nirvana. They raised rates. There was no problem, and then came January. The first trading day of January, boom, and we had the worst January in the history of all Januarys in the stock market. I think the very same thing is going to happen in 2017, but I think it’s going to be worse. Not only are we going to fall, I think there is going to be a huge tremor in China and in the emerging markets. That’s early in 2017, and when that occurs, Janet Yellen (Fed Head) can forget about three rate hikes. I think she will not get more than one rate hike out of the way before this whole thing unwinds and unfolds. Then, you are going to get a reversal of those rate hikes. You are going to go back into QE (quantitative easing or money printing) in 2017.”
Click through for the full interview video. Next year could be real interesting.
The Great Reset is the milestone economic event that is the final step in the restructuring of the monetary system that functions as real money is intended to.
This system in word and fact is the mechanism the sum of its parts truly functions as:
1.A Store House of value.
2.A Measure of value.
3.A Standard of value
4.A Medium of Exchange.
Money as generally interpreted in your modern business school and by a general public is anything of value that serves as a (1) generally accepted medium of financial exchange, (2) legal tender for repayment of debt, (3) standard of value, (4) unit of accounting measure, and (5) means to save or store purchasing power..
In short, if you were waiting on the sidelines after this year’s monster rally, this is your second chance — and, in my view, your last chance — to buy gold at these prices. And it comes at just the right time.
The British Office for National Statistics just admitted that it miscalculated British imports by some £6 billion pounds sterling! Guess what they missed? That’s right. What else? You guessed right — gold! It always seems to be gold. Hmmm…
Anyway, it depends on the exact day each ounce of gold was imported, but generally speaking, that money adds up to about 186 tons of gold bullion. The uncertainties of Brexit seem to have caused a massive surge in gold demand in a very short period of time. It’s a huge amount of gold, and it compounds the point I have been making for a long time. World gold demand far outstrips supply.
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