The Weekly Gold Digger (Dec 18 2015)

This is a sample entry from Leslie Burton’s newsletter, The Weekly Gold Digger, published on Friday, December 18, 2015.

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The Gold has bounced after the awaited Fed rate hike. It is unusual that Gold would trade up as the Crude Oil continues to slide.

The Gold market bounced as it had been drastically oversold! The Much anticipated Fed rate hike was the focus of the week’s trading! We may get some support here, but it will really be a matter of the global stimulus and currency devaluations. 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 $1045.00. 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. For the long run, US debt instruments may go out of favor and allocations may again favor the precious metals. 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. The Peoples Bank of China may have increased their Gold holdings to $59.52 billion as of the end of November.

In contrast, the Shanghai Gold Exchange may have seen some substantial withdrawals. 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. Outflows of Gold ETF’s on Thursday were up to 4.9 tons while for the year the outflows were about 142 tons.

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.

Volume is lighter going into the Christmas holiday next week with no trading on the abbreviated holiday schedule. The realization hits that we still have decreasing energy prices pressuring the markets, manufacturing remains weak, China is still in a slowdown and the stronger US Dollar can only hurt the export numbers. This may even put China in a precarious situation as the dollar strengthens, the yuan may weaken more thus creating that trade imbalance or export advantage. Goods purchased with a weaker currency may be much more appealing to foreign buyers. The Chinese yuan is now in the IMF’s basket of premier currencies which may prohibit a slide of the currency. China has been subjected to a great deal of scrutiny over the years in response to a devaluation of the yuan. As interest rates increase in the US, loans become more costly thus affecting car sales, home sales and just basic credit lines. The Fed has virtually led the rally in the indexes thru one of the most supportive stimulus packages in history of $4.5 trillion!

The Fed stressed that the gradual rate hike policy changes may be about four this year and that it will be contingent on the economic data coming in. The solid strength in the economy may be thru the car sales, services such as investments and possibly housing. The Housing Starts for November were at 1.173 million while the previous reading was 1.060 million. The Housing Permits were at 1.289 million while the previous reading was 1.150 million. Manufacturing and exports remains the weakness in the economy. Industrial Production for November was -0.6% while the previous reading was -0.2%. Capacity Utilization was 77.0% while the previous reading was 77.5%. Manufacturing was 0.0% while the previous reading was 0.4%. Accommodation was used in this policy meeting but may fade in the meetings to come. There is a concern that growth and inflation may go thru their targets due to the length of time and vast amount of stimulus during these last several years. The markets showed increased volatility with this important event. 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 1.375% by December 2016.

The Purchasing Manager’s Index (PMI) US Services Flash for December was 53.7 while the previous reading was 56.5. The Atlanta Fed Business Inflation Expectations for December were 1.9% while the previous year over year reading was 1.8%. The Kansas City Fed Manufacturing Index for December was -8 while the previous reading was 1. The survey of manufacturers shows a deep contraction with employment at -17. Any number below 0 reflects contraction. The Initial Jobless Claims for the week of December 12th was down 11,000 to 271,000 while the previous reading was 282,000. Continuing Claims were down 7,000 to 2.238 million. The Philadelphia Fed Business Outlook Survey of General Business Conditions Index for December was -5.9 while the previous reading was 1.9. The Current Account for Q3:15 was down -$124.1 billion while the previous reading was -$109.7 billion. The Bloomberg Consumer Comfort Index for the week of December 13th was 40.9 while the previous reading was 40.1. The Leading Indicators for November were 0.4% while the previous reading was 0.6%. The Money Supply for the week of December 7th was $15.4 billion while the previous reading was -$38.8 billion.

The Fed Balance Sheet for the week of December 16th Level was $4.490 trillion while the previous reading was $4.480 trillion. The Total Assets were $9.2 billion while the previous reading was $2.4 billion. The Reserve Bank Credit was $12.9 billion while the previous reading was $1.5 billion. The Housing Starts for November were at 1.173 million while the previous reading was 1.060 million. The Housing Permits were at 1.289 million while the previous reading was 1.150 million. MBA Mortgage Applications for the week of December 11th Composite were -1.1% while the previous reading was 1.2%. The Purchase Index was -3.0% while the previous reading was 0.04%. The Refinance Index was 1.0% while the previous reading was 4.0%. Industrial Production for November was -0.6% while the previous reading was -0.2%. Capacity Utilization was 77.0% while the previous reading was 77.5%. Manufacturing was 0.0% while the previous reading was 0.4%. The PMI Manufacturing Index Flash for December was 51.3 while the previous reading was 52.6. The Federal Open Market Committee raised the Fed Funds Rate – Target Level from 0 – 0.25% to 0.25% to 0.50% today! The liftoff has begun with the operational withdrawal of stimulus. The Fed sees only gradual rate increases and they keep accommodative in their language. They see considerable improvement in the labor area and maintain that they are reasonably confident that inflation will move to the 2% target in the future. On inflation they moved based on projections from studies. The Fed may have been viewed as rather dovish in this undertaking.

The Consumer Price Index for November was 0.0% while the previous reading was 0.2%. The CPI excluding food & energy was 0.2% while the previous reading was 0.2%. The Empire State Manufacturing Survey of General Business Conditions Index for December was -4.59 while the previous reading was -10.74. The Housing Market Index for December was 61 while the previous reading was 62. The Redbook Store Sales was 1.5% while the previous reading was 1.9%. Treasury International Capital for October Foreign Demand for Long-Term US Securities was down -$16.6 billion while the previous reading was $33.6 billion. While foreign residents were sellers of Treasuries and equities, they were substantial buyers of corporate bonds and government agency bonds. 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 bearish temporary mode if it stays below $1088.00. $1061.10 may be the comfort level or point of control. The range may be $1100.00 to $1045.00 for now. The stimulus in other parts of the world such as China and the Euro Zone is good support for Gold. The really long-term range remains very optimistic. Currency devaluations would be the key to a rise in Gold!

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