Gold Gets Derailed From The Rally Tracks Again

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you! 

The soft dollar that began yesterday and the week, carried on throughout the day, and in the overnight sessions as well. The trading range has been narrow, and it appears to me that the currency traders are looking for something to send them in a direction, either way, but a clear, distinct direction, and to quit playing around with this one day dollar up next day dollar down stuff we’ve seen the last couple of weeks.

I was writing the Review & Focus which is now available to everyone, and all you have to do to read it is go here and you’ll not only see the May R&F but also the April R&F. OK, getting back to me writing the June R&F. I was making a big thing out of the fact that the so-called Shanghai Accord seems to be fading, and we’re back to yen and renminbi weakness. The euro has range traded since hitting a high of 1.15 a couple of weeks ago, and then fell back to a 1.13 to 1.14 range. So, not so much damage to the euro, but the yen has really lost ground. In April yen was 106, now in May it’s 109 and losing ground every day. So, there you go a little preview of the June R&F, aren’t you now saying to yourself, why haven’t I been reading this letter once a month?

There’s not much going on overseas this morning. Sweden’s Riksbank will have a couple of members speaking.  In the U.K. they printed their April CPI (consumer inflation) and it was weaker than expected, which was 0.5% and the actual was 0.3% year on year.

Just stop there for a minute, and think about what was going on here a year ago. The Bank of England’s Gov. Mark Carney was talking about hiking rates and of course I was laughing my you know what off at that call. But imagine if you will what the U.K. economy would be looking like right now, if he had gone ahead and hiked rates not once but twice as he was suggesting.

Things in the Eurozone have seem to gone to play hide and seek. 7,8,9,10, ready or not here I come! Seriously, the Eurozone is as quiet as a church mouse today. And the euro has added a small amount to its value overnight.

The Big thing overnight was the release of the Reserve Bank of Australia’s (RBA) meeting minutes from the meeting where they cut rates 25 Basis Point at the beginning of the month. Observers thought that these minutes would be quite dovish given the fact that the RBA did cut rates, when most people thought they wouldn’t. But the minutes proved not to be dovish, and in fact pointed out what a difficult decision the rate cut was, and how at one point it was thought they would wait for more information on the economy before cutting. Well, after seeing these minutes, Aussie dollar (A$) traders took them as an indication that the RBA will not cut rates again in June, and a lot of the short A$ trades had to be reversed, thus propelling the A$ to its best day in a month!

I read a lot of research on the data that China printed over the weekend, and I reported to you on yesterday. I guess I’m the only one in the universe that thinks that the China economic prints were solid. No, I even mentioned that they didn’t meet expectations. But when Retail Sales are 10.1% that’s a solid print, I don’t care what anyone says otherwise! But the markets are thinking that China is in trouble again, after a brief respite from the markets putting pressure on them because of their economic slowdown.

Again, I’m going to go back to what I told the Daily Reckoning on Friday, and that is how I view the situation in China. China had a nice long run of a boom economy, but after the boom you need a bust, to clean out the excesses of the boom run, and that’s what’s happening in China and will continue to happen in China until the excesses have been cleaned out. Of course it doesn’t help matters that the global economy is circling the bowl right now. The Chinese renminbi was allowed to appreciate again overnight, but at a very small amount. It was as if the People Bank of China (PBOC) said, “we’ll throw the markets a bone here, and see how they react”.

So, yesterday, I asked the question to you – did you think that the Fed would hike rates at their June meeting? I’ve gone on record as saying I didn’t think so, and neither do the bond boys, or the Fed Fund Futures guys. But there was a curious thing that occurred yesterday under the cover of darkness. A Janet Yellen speech has been added to the speaking circuit calendar, that will take place on June 6th, which is before the “blackout” that occurs before a Fed meeting, and after the Jobs Jamboree which will be June 3rd.

You don’t think this was done so she could see what the May jobs report looked like, and then could formulate her speech around that data? If the data was good, she could be giving the wink and nod for a June rate hike, and if the data was bad, she could be talking about how the Fed still believes that inflation and the economy will rebound this year. I have to say that I find this announcement of a previously unscheduled speech to be very curious. Curious don’t you agree? Not only curious but disturbing to me.

I really take Central Banks to the woodshed in the June R&F, you’ll want to make sure you check that out when it gets posted. And not just the Fed. The Bank of Japan, Bank of England, and others, are all rounded up and taken to the woodshed for their insistence in “knowing better” as to what their economies needed.

The Bank of Japan (BOJ) is the poster child for Central Bank interference in its economy. It all began over two decades ago. At the time, I was a foreign bond & currency trader for the old Mark Twain Bank. And we all thought that what the BOJ and Japanese government were doing was strange. Their cutting rates so aggressively, and their Budget stimulus measures, were just the beginning.

Fifteen years ago, when we took control of the currency deposit book back, I would write about how the Japanese needed to change what they were doing because it wasn’t working. Well, they didn’t listen and now we’re more than 20 years down the road, and they’re still  cutting rates, which are now negative, they’re still stimulating the budget.

There are problems that Central Banks just can’t, even if they want to with the strongest desire, fix. And either they will figure that out one day, hopefully not too distant in the future, or they will become dinosaurs, and no one will listen to what they say. I think we’re almost there, the big meteor is about to hit.

In Asia overnight, Singapore printed their April NODX (non-oil domestic exports) and they were quite weak, falling -7.9% year on year. Not as bad as expected which was -8.4%, but negative is still negative, and that should hurt the Sing dollar (S$). The S$ had been quite perky since March, but recent trading has brought the S$ back and this report should knock the stuffing out of the S$ in the short term.

And in Canada, it appears that the wildfires in Alberta aren’t going to be that big of a hit to the Canadian GDP, and that the economic effect should be just a temporary thing. The price of oil rose again in the past 24 hours, but still holds a $47 handle. The Canadian dollar/loonie hasn’t been a HUGE recipient of the rise in the price of oil like the Russian ruble or the Norwegian krone has been.

It’s difficult to tell what part of the Brazilian real’s rise is oil-related and what part is impeachment-related. But the real has held its gains so far even though I thought that it would struggle once the impeachment process was complete, for there were no quick fixes to the Brazilian economy. But a rising oil price is a helper!

Speaking of oil, I was sent a graph yesterday by a dear reader, that illustrates the problems the U.S. energy companies below investment grade are going to have going forward, even if the price of oil remains stabilized. Next year, no biggie, just $62 billion in bond maturities to deal with. But in 2018, bond maturities rise to $100 billion, and in 2019 to $180 billion, and in 2020 to more than $220 billion.

OMG! But I don’t see anything that could go awry here, do you? But then I’ve been talking about the financialization of the oil producers for months now, so none of this should be a surprise to you. Well maybe the size of the problem will be, I’ll give you that!

Gold couldn’t hold the $10 gain it held yesterday morning, and ended up losing another $10 on top of that, making its loss on the day $20 in reality, given it has gained $10 in early trading. UGH! This morning, the price of gold is flat, no change at this point of the morning.

I was asked a question on the Pfennig website yesterday, that I found interesting. The reader asked me where I saw gold trading in five and ten years. WOW! I’ve never really thought about that, setting an actual price for gold in five or ten years. All I’ve ever thought about is that it would be much stronger than it currently is, because by five years we’ll probably have experienced a currency regime change, with the dollar losing its reserve currency status. So, I was unable to actually answer his question, other than to say that I think it will be much stronger than it currently is. Which is my opinion and could be wrong!

If you believe in what James Rickards writes, he says that:

…there will be a collapse of the international monetary system, and that will cause a monstrous run on gold. The local gold dealer will be sold out or back-ordered. The Mint will stop taking orders, and the price will likely go ballistic. It could go up more than $100 an ounce per day, more than $1,000 per ounce per week, due to panic buying. You may want gold then, but you may not be able to get it or afford it.

And the Big News overnight night although not market moving was that after 41 years, the Treasury Dept. finally unveil the total Treasury holdings of Saudi Arabia. The Saudis own $116.8 billion in Treasuries. Ok, am I thinking about something else or am I right here that the Saudis threatened to sell $750 billion in Treasuries if the U.S. allowed the citizens to sue Saudi Arabia in the 9/11 lawsuit? Ahem. $117 billion is a far cry from $750 billion. I’m just saying.

The U.S. Data Cupboard has a region manufacturing index for us yesterday. The Empire State PMI, showed a steep fall back -9.0 in May thus wiping out the 9.6 gain in April. Hmmm… let’s see in April the dollar was falling daily, and so far in May it has rebounded. Take what you want from that pairing, but it makes abundant sense to me!

Today’s Data Cupboard has a piece of real economic data, Industrial Production (IP), which should show nascent growth, nothing of rate hike worthy material. And we’ll get one not so real economic data, in Housing Starts, and one piece of data that I call stupid. The stupid CPI. But let’s play along with the government on this one and pretend we care about CPI, just today, eh? NOT!

I’ve got a special treat for you today. The folks at have put together an illustration of how things work at the COMEX.  In this illustration you’ll find out how:

  • COMEX Trading Volumes
  • Fractionally Reserved Futures Trading
  • Cash-settlement of COMEX Gold Futures Contracts
  • Eligible and Registered Gold on COMEX
  • US Treasury Gold Reserves
  • Location of US Treasury Gold Reserves
  • Foreign Gold at the Federal Bank of New York
  • US Gold Mining

So, if you want to go directly there, simply click here.

Chuck again. I found that pretty interesting, and I hope you did too. If you don’t have time to do it now, save this email and don’t just delete it, as my colleague once told a new reader he could do, and then you can come back to it and view it later..

That’s it for today. I hope you have a Tom terrific Tuesday, and be good to yourself!


Chuck Butler
for The Daily Pfennig

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