The Weekly Gold Digger (Dec 11 2015)

This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, December 11, 2015.

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The US Dollar has decreased giving Gold a temporary bounce ahead of the muchly anticipated Fed meeting next week where a hike may be within the monetary policy.

The Gold market bounced as it had been drastically oversold in light of the Fed’s muchly anticipated rate hike. We may get some support here, but it will really be a matter of the Fed delivering monetary policy at the December 15th and 16th’s FMOC! The Gold market has been severely sold and thus undervalued and perhaps overlooked in the allocations of the fund managers. This may be enough to propel the Gold as long as support is held at $1050.00. The question may remain if Yellen does not hike on Wednesday, could that trigger a run-up on the Gold? Gold can move swiftly in wide ranges in a moment’s notice. While we have little to propel it higher at this vantage point in fundamental news, any catalyst such as global unrest, currency devaluation, threat of inflation and momentum buying may move it. The majority of Gold investors possibly may hold Gold for any of the potential catalysts that may make Gold the ultimate currency. 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 toward it the more that people lose faith in the global currencies. The International Monetary Fund (IMF) with its 188 member nations announced that the Chinese Yuan meets the criteria set for the Special Drawing Rights (SDR) basket validating that China has met with the reforms necessary to maintain the SDR standing. The reserve status will be introduced October 1st of 2016 with the Yuan making up about 10.92% of weight in the basket of currencies. The US Dollar makes up about 41.9% of the basket. The global monetary basket is also made up of the Euro FX with about a 30.93% weight, the Japanese Yen accounting for about 8.33% and the British Pound making up about 8.09% of the currency basket. The IMF may find additional countries to qualify in the future, but China had the largest foreign exchange reserves totaling about $3.53 trillion. China may have to step up contributions to the United Nations for the status that comes with the new standing. 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 or US debt instruments, then perhaps the Gold may have extreme valuations.

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 should be a boon for Gold at this moment, but the minute that the Fed schedules a rate hike, all bets are off. Central Banks increased their holdings to 179.5 tons for Q3:2015. Russia added Gold reserves in the 3rd quarter equaling about 77.2 tons. The People’s Bank of China added 50.1 tons July thru September. According to the World Gold Council, the US holds 8,000 tons of Gold. 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.

Stronger than expected data only furthered the sentiment that a rate hike was imminent. Producer Price Index (PPI) was 0.3% while the previous reading was -0.4%. The PPI excluding food and energy was 0.3% while the previous reading was -0.3%. PPI excluding food, energy and trade services was 0.1% while the previous reading was -0.1%. Retail Sales for November was 0.2% while the previous reading was 0.1%. The Retail Sales excluding automobiles is 0.4% while the previous reading was 0.2%. The PPI excluding automobiles and gasoline was 0.5% while the previous reading was 0.3%. The consumer spending numbers are still relatively strong. Traders may have lightened up ahead of next week’s FMOC monetary policy meeting! Expectations are for Fed Chairperson Janet Yellen to raise rates after one of the most stimulus oriented passages in US economic history. She is expected to use forward guidance and remain data dependent. We have the Fed policy meeting next Tuesday and Wednesday while we have S&P 500 expirations of the options and futures on Friday. The global slowdown has already pressured the market and the energy sector has dropped taking the indexes with it. The Federal Reserve is expected to raise interest rates this month, but inflation remains a concern. The strong US Dollar and the low oil prices still negatively affects the marketplace.

The Import and Export data has shown the economy to contract and with the possible rate hike the US Dollar may strengthen further thus creating less expansion. The FOMC minutes confirmed that a potential lift-off in December remains data dependent. It was even suggested that should the economic conditions decline that new monetary stimulus may be considered. 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. The majority of traders may now believe that the first rate hike may be December of 2015. The US Dollar may strengthen once the Fed announces the rate hike. Other countries may use currency devaluation to their advantage thus adding to the economic condition. One of the key components in determining the next Fed policy changes was inflation, yet now the Fed may meet criteria based on projections. As we approach full employment, the sentiment gets stronger favoring the Fed potential rate hike at the next FMOC on December 15th and 16th. The potential Fed hike may mean that the US may slow more but that the country is healthier to withstand the hike.

If the Fed does not raise interest rates then it may be viewed that the economy is slowed. US Fed Chairperson Janet Yellen said that the US economy is performing well and the December rate hike remains a “live possibility”. She has continually stated that the move may be “data dependent” but now we are talking in terms of forecasts of potential inflation targets that have been unmet to date. Chairperson Janet Yellen has said that “markets and the public should be thinking about the entire path of policy rates over time” insinuating that the earlier rate increases may lead to more gradual increases over time. The FOMC forecasts the interest rates in the US to be at 1.4% by December 2016. Strength in the economy may be a boost in confidence. Stimulus used by China, the Bank of Japan and perhaps the Euro Zone may impact the Fed’s action. The stimulus abroad decreases the foreign currency against the US Dollar thus making the dollar stronger. The strength of the dollar is somewhat blamed for the economic conditions in the US as it makes export business decline and corporations that do business overseas also will feel the imbalance. Foreign buyers do not want to pay more for US goods. US household wealth has fallen by $1.23 trillion between July and September of this year per the flow of funds report. The household debt increased at the same time. Yet thru the stimulus, the government has more money flowing than the banks know what to do with. The potential government shutdown was avoided by the US House of Representatives putting thru a bill to fund the government thru Wednesday.

The energy sector continued to drop as the Organization of the Petroleum Exporting Countries’ (OPEC) decided to continue to pump about 31.5 million barrels a day in light of the oversupplies pressuring crude oil prices. The energy stocks and sectors all continue to see lower prices and employment wane with the huge inventories. The US shale production may be the hardest hit as oil production dropped 38,000 barrels to 9.164 million barrels a day for the week of December 4th. It is thought that this scenario may have China transition from a manufacturing giant to become more of a service country thus causing the demand for crude oil to drop further. The US has also met this fate somewhat as about 80% of the jobs are service based. Projections are for the healthcare and social assistance type jobs to dominate in the years ahead. Construction is also projected to soar to about 790,000 jobs by 2024. The Nonfarm Payrolls for November was 211,000 while the previous reading was 271,000. There was an impressive increase in the construction jobs by 46,000 new workers. Trade and transportation was up 49,000. Retail workers increased by 31,000. There was a dip in temporary employment by -12,000. Professional and technical services increased by 28,000 while accounting increased by 11,000 employees. Health care increased by 24,000 new workers in November. Hospitals expanded their employee base by 13,000 new jobs. Food and beverage establishments expanded by 32,000 workers. US Fed Chairwomen Yellen has said that the US only has to create 100,000 new jobs each month to keep up with new individuals coming into the workplace. Consumer Credit for October was increased by 5.5% to $16.0 billion while the previous reading was $28.9 billion. The non-revolving credit such as student loans and auto loans increased by 7.4% to $15.8 billion in October. The revolving credit was up 8.7% to $0.2 billion. The Real GDP for Q3p:2015 came in at 2.1% while the previous reading was 1.5%. The GDP Price Index was 1.3% while the previous reading was 1.2%. The household consumer spending that accounts for about 70% of the GDP increased 3% annualized rate while estimated at 3.2%. The VIX CBOE Volatility Index was up 26.11% to 24.39 today.

Producer Price Index (PPI) was 0.3% while the previous reading was -0.4%. The PPI excluding food and energy was 0.3% while the previous reading was -0.3%. PPI excluding food, energy and trade services was 0.1% while the previous reading was -0.1%. Retail Sales for November was 0.2% while the previous reading was 0.1%. The Retail Sales excluding automobiles is 0.4% while the previous reading was 0.2%. The PPI excluding automobiles and gasoline was 0.5% while the previous reading was 0.3%. Business Inventories for October was 0.0% while the previous reading was 0.3%. Consumer Sentiment for Dec(p), 2015 was 91.8 while the previous reading was 91.3. The Initial Jobless Claims report for the week of December 5th was up 13,000 to 282,000 while the previous reading was 269,000. Continuing Claims was up 82,000 to 2.243 million with a one-week lag time. Export Prices for November were -0.6% while the previous reading was -0.2%. The Import Prices were -0.4% while the previous reading was -0.5%. Both Import and Export Prices are pointed to a deep contraction and projected to continue going forward. This is not confined to the energy prices either. The Bloomberg Consumer Comfort Index for the week of December 6th was 40.1 while the previous reading was 39.6. The Treasury Budget for November was -$64.6 billion while the previous reading was -$136.5 billion. The Fed Balance Sheet for the week of December 9th Level was $4.480 trillion while the previous reading was $4.478 trillion. The Total Assets were $2.4 billion while the previous reading was $1.0 billion. The Reserve Bank Credit was $1.5 billion while the previous reading was -$11.4 billion. The Money Supply for the week of November 30th was -$38.8 billion while the previous reading was $19.8 billion. The Wholesale Trade Inventories for October was -0.1% while the previous reading was 0.5%. MBA Mortgage Applications for the week of December 4th Composite Index was 1.2% while the previous reading was -0.2%. The Purchase Index was 0.04% while the previous reading was 8.0%. The Refinance Index was 4.0% while the previous reading was -6.0%.. The NFIB Small Business Optimism Index for November was 94.8 while the previous reading was 96.1. For further information on this index, you may visit the http://www.nfib.com/ site. The Redbook Store Sales were 1.9% while the previous reading was 3.9%. The Job Openings and Labor Turnover Survey (JOLTS) for October was 5.383 million while the previous reading was 5.526 million. The JOLTS report covers all the Job Openings whether filled or not on the last business day of the month. The Gallup US Consumer Spending Measure for November was $92 while the previous reading was also $92. The TD Ameritrade IMX for November was 4.88 while the previous reading was 4.79. Consumer Credit for October was $16.0 billion while the previous reading was $28.9 billion. The Nonfarm Payrolls for November was 211,000 while the previous reading was 271,000. The Unemployment Rate was 5.0% while the previous reading was 5.0%. Private Payrolls was 197,000 while the previous reading was 268,000. The Average Hourly Earnings was up 0.2% while the previous reading was 0.4%. The average workweek was 34.5 hours while the previous reading was 34.5 hours. The Participation Rate or level was 62.5% while the previous reading was 62.4%. The Real GDP for Q3p:2015 was 2.1% while the previous reading was 1.5%. The GDP Price Index was 1.3% while the previous reading was 1.2%.

Gold Chart

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! In light of potential interest rate hikes, the metal may sink further. The Gold (April) contract is in a bullish temporary mode if it stays above $1049.90. $1073.00 may be the comfort level. The range may be $1100.00 to $1050.00 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. Currency devaluations would be the key to a rise in Gold!

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