This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, October 23, 2015.
The US Dollar is now pressuring the Gold market again back into the lower trading range again. The added stimulus of China and potential added stimulus of the Euro Zone should offer some support to the Gold.
The Chinese rate cut should have bolstered the Gold somewhat yet the Gold is clearly in a downtrend currently. Investors should be buying Gold in other currencies with the rate cuts in mind. We may even see the Gold decouple from the US Dollar as global fears may continue. China may have increased their Gold holdings in the reserve central bank to 1,709 tons in their quest to become a reserve currency with the IMF. Gold may be coming into a time where it becomes a currency and allocations may gravitate to it the more people lose faith in the global currencies. The question of how much money can be printed without that currency losing value remains to be seen. When countries refuse to take certain currencies, then perhaps the Gold may have its day, but for now it remains in a slight downtrend.
The World Gold Council reminds us that Gold should not be influenced so much by interest rates as the true role of the metal is as a safe-haven vehicle or a currency in troubled times. The economic climate is a boon for Gold at this moment, but the minute that the Fed schedules a rate hike, all bets are off. China gold reserves increased by 14.9 tons at the end of September. The central bank increased their reserves by 16.2 tons in August. According to the World Gold Council, the US holds 8,000 tons of Gold. China may have added 16 tons of Gold in August as reported by UBS. China has typically been accumulating the metal while decreased the purchases of US debt instruments. Chinese net Gold imports from Hong Kong may be 59.9 tons year over year as of August. The World Gold Council forecasts that the global central bank reserves added about 120 tons of Gold in the first quarter. In the second quarter, the Gold demand was 137.4 tons. Russia bought about 67 tons in the first half of the year. Their reserves may be about 1.275 tons to date. Gold had been hurt this year by a listless chart. Risk allocations had remained preferred by investors such as the equities. The Fed’s potential rate hike had impacted the Gold negatively. Russia and China seem to be opting for Gold reserves as opposed to US Dollar reserves. The Shanghai Exchange in China may be allowing physical Gold to be used as collateral on the futures contracts beginning September 29th. The A-shares, treasuries and exchange traded funds may be used as collateral for the Gold futures. The physical Gold may cover up to 80% of the margin value. The Gold may be coming back into vogue as a currency over the longer timeframe. Gold consumption should regain its footing more in the second half of this year. The World Gold Council Indian imports may be about 95 to 100 tons in August alone. The Gold sales decreased to 33,900 ounces in August at the Perth Mint.
The Peoples Bank of China cut interest rates for the sixth time giving the market a boost! Next week the Bank of Japan meets to perhaps introduce additional stimulus as well. The central bank also increased the allocation of loan money available thus reducing the level of reserves required of the banks. The Federal Reserve also meets to perhaps discuss a potential rate hike. China also received news that the International Monetary Fund (IMF) may add the Yuan to the basket of reserve currencies fairly soon. The Special Drawing Rights would allow about a trillion in global reserves to be converted into the Chinese currency. The move would offer China the prestige of being a premier currency like the US Dollar. There are still structural challenges to be met in the process. Currently the foreign exchange reserve assets consist of the US Dollar, Euro Currency, British Pound Sterling and Japanese Yen. The Yuan may be given a 13% weighting within the basket of currencies. Earnings began to look fairly positive as well. The S&P 500 earnings in the third quarter may be projected to decline now by 2.8% upgraded from the previous 4.9% forecast by analysts. European Central Bank President Mario Draghi spoke of introducing additional stimulus to increase the growth potential and the inflation outlook. Draghi spoke of data such as inflation forecasts that may be available in December to help determine what form of stimulus package would be appropriate. He expressed an aggressive approach to meeting the growth challenges. His dovish remarks decreased the Euro FX and inflated the US Dollar further. China shows that their annual consumer inflation growth decreased to 1.6% in September below the projected 1.8% and also the 2.0% increase in the previous month. Chinese imports decreased 20.4% to $145.3 billion while their exports declined by 3.7% to $205.6 billion. Translated into Yuan terms the imports decreased 17.7% and exports declined by 1.1%.
The Chinese Finance Minister Lou Jiwei spoke at the IMF’s annual meeting discouraging the US from engaging in a rate hike while the global economy may not be in condition to handle it. The International Monetary Fund (IMF) has cut its growth outlook for 2015 to 3.1% from 3.3%. Globally, countries are not expanding with China being the main focus of the contracting global scheme. The IMF would prefer to see China increase consumption growth. The IMF has further fears of foreign currency exposure of companies and the increase volatility in the marketplace. The Yuan, when or if it goes to reserve currency status should be in high demand. The last Non-Farm payrolls came in at 142,000 while traders were expecting 203,000! To keep up with the population growth only 100,000 are needed but to move toward full employment, much more is needed. US Fed Chairperson Janet Yellen has been forthcoming in her desire to introduce the rate hike this year yet it seems to be pushed back to date. It is difficult to see how she may do so in light of the World Bank, China and the IMF all asking her to refrain from a rate hike until 2016. The IMF has in fact asked the Bank of England and Japan to stay the course and not tighten until further signs of recovery. US Fed Chairperson Janet Yellen stressed patience citing the risks inherent with the global slowdown. The transitory inflation effects may also be a factor in the decision. While labor has improved, the inflation target has not been met. The focus was pushed out to the October 27th-28th or December 15th – 16th FMOC meeting stressing that the Fed may make an unscheduled announcement as well. There are two Fed meetings yet, but there is no guarantee that a Fed hike would take place this year. Traders may now believe that the first rate hike may be March of 2016. If Draghi adds stimulus in December that may also discourage the Fed from hiking rates here. Earnings came in fairly positive across the board adding to the positive momentum. The PMI Manufacturing Index Flash for October was 54.0 while the previous reading was 53.0. The Existing Home Sales for September SAAR was up 4.7% to 5.55 million while the previous reading was 5.31 million. The Initial Jobless Claims for the week of October 17th was up 3,000 to 259,000 while the previous reading was 255,000. The Jobs sector maintains a firm standing.
The PMI Manufacturing Index Flash for October was 54.0 while the previous reading was 53.0. The Initial Jobless Claims for the week of October 17th was up 3,000 to 259,000 while the previous reading was 255,000. Continuing Claims were up 6,000 to 2.170 million with a one-week lag time. The Chicago Fed National Activity Index for September was -0.37 while the previous reading was -0.41. The FHFA House Price Index for August was 0.3% while the previous reading was 0.6%. House prices have been on the rise due to reduced inventory on the market and decrease in distressed homes. The Existing Home Sales for September SAAR was up 4.7% to 5.55 million while the previous reading was 5.31 million. The Bloomberg Consumer Comfort Index for the week of October 18th was 43.5 while the previous reading was 45.2. Kansas City Fed Manufacturing Index for October was -1 while the previous reading was -8. Leading Indicators for September were -0.2% while the previous reading was 0.1%. The Fed Balance Sheet for the week of October 21st was $4.501 trillion while the previous reading was $4,505 trillion. The Total Assets were -$3.3 billion while the previous reading was $18.5 billion.
The Reserve Bank Credit was $6.0 billion while the previous reading was $4.6 billion. The Money Supply for the week of October 12th was -$18.7 billion while the previous reading was $2.1 billion. The MBA Mortgage Applications for the week of October 16th Composite Index was 11.8% while the previous reading was -27.6%. The Purchase Index was 16.0% while the previous reading was -34.0%. The Refinance Index was 9.0% while the previous reading was -23.0%. The Housing Starts for September were increased 6.5% to 1.206 million while the previous reading was 1.126 million. The Housing Permits were decreased 5.0% to 1.103 million while the previous reading was 1.170 million. Redbook Store Sales for the week of October 17th were up 1.3% while the previous reading was up 1.1%. The Housing Market Index for October was 64 while the previous reading was 62. This was quite a boost for the housing market and may lend to further optimism for the housing starts and permits due out tomorrow. The Employment report’s Nonfarm Payrolls for September were down to 142,000 while the previous reading was 173,000. The Unemployment Rate was 5.1% while the previous reading was also 5.1%. The Private Payrolls were 118,000 while the previous reading was 140,000. The Average Hourly Earnings were 0.0% while the previous reading was 0.3%. The Average Workweek was 34.5 hours while the previous reading was 34.6 hours. The Participation Rate was 62.4% while the previous reading was 62.6%. The ADP Private Payrolls Employment Report for September was 200,000 while the previous reading was 190,000. The Real GDP for Q2f:2015 was 3.9% while the previous reading was 3.7%. The GDP Price Index is forecast at 2.1% while the previous reading was 2.1%.
The safe-haven properties of the Gold are perfect for those times of uncertainty and/or conflict in the world or a time of easing! The Gold (December) contract is in a bearish mode if it stays below $1191.70. A key consolidation area may be $1180.00 to $1140.00 for the moment. $1164.60 may be the comfort level. The range may be $1180.00 to $1140.00 for now. The stimulus in other parts of the world such as China and the Euro Zone is good support for Gold. The delay in the Fed’s potential rate hike was supportive to the Gold but this will be a month by month or even a day by day view which the Fed may change at any time. The really long-term range remains very optimistic. The potential of this move if the Fed maintains their delayed stance would be $1234.00. It must break thru $1191.70 to continue the move up.
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