Author: admin

The tension over the disputed territory in the South China Sea is about to escalate to another level: according to a Reuters report, Japan is preparing to to dispatch its largest warship on a three-month tour through the South China Sea beginning in May, in “its biggest show of naval force in the region since World War Two.”

Japan Maritime Self Defense Force’s helicopter carrier Izumo

The 249 meter-long (816.93 ft) Izumo is as large as Japan’s World War Two-era carriers and can operate up to nine helicopters. It resembles the amphibious assault carriers used by U.S. Marines, but lacks their well deck for launching landing craft and other vessels.

While China claims almost all the disputed waters despite the regular complaints of other nations in the region, and its growing military presence has fueled concern in Japan and the West, with the United States holding regular air and naval patrols to ensure freedom of navigation, so far Japan’s territorial claims have involved the Senkaku island chain in the East China Sea; that however appears to be changing as Japan seeks to stake a military presence in the contested region.

The Izumo helicopter carrier, commissioned only two years ago, will make stops in Singapore, Indonesia, the Philippines and Sri Lanka before joining the Malabar joint naval exercise with Indian and U.S. naval vessels in the Indian Ocean in July, before returning to Japan in August.

Why create another point of Chinese antagonism over the region? “The aim is to test the capability of the Izumo by sending it out on an extended mission,” said one of the sources who have knowledge of the plan. “It will train with the U.S. Navy in the South China Sea,” he added, asking not to be identified because he is not authorized to talk to the media. A spokesman for Japan’s Maritime Self Defense Force declined to comment.

Taiwan, Malaysia, Vietnam, the Philippines and Brunei also claim parts of the sea which has rich fishing grounds, oil and gas deposits and through which around $5 trillion of global sea-borne trade passes each year. Japan does not have any claim to the waters, but has a separate maritime dispute with China in the East China Sea.

 

Japan wants to invite Philippine President Rodrigo Duterte, who has pushed ties with China in recent months as he has criticized the old alliance with the United States, to visit the Izumo when it visits Subic Bay, about 100 km (62 miles) west of Manila, another of the sources said. Asked during a news conference about his view on the warship visit, Duterte said, without elaborating, “I have invited all of them.”

He added: “It is international passage, the South China Sea is not our territory, but it is part of our entitlement.” On whether he would visit the warship at Subic Bay, Duterte said: “If I have time.”

Japan’s unexpected flag-flying operation comes as the United States is conflicted between taking a tougher line with China and making concessions ahead of Xi’s visit to Trump next month. Washington has criticized China’s construction of man-made islands and a build-up of military facilities that it worries could be used to restrict free movement. Beijing responded in January said it had “irrefutable” sovereignty over the disputed islands after the White House vowed to defend “international territories”.

As Reuters notes, Japan in recent years, particularly under Prime Minister Shinzo Abe, has been stretching the limits of its post-war, pacifist constitution and has been making aggressive pushes for a return to militarism. It has designated the Izumo as a destroyer because the constitution forbids the acquisition of offensive weapons. The vessel, nonetheless, allows Japan to project military power well beyond its territory. Based in Yokosuka, near to Tokyo, which is also home to the U.S. Seventh Fleet’s carrier, the Ronald Reagan, the Izumo’s primary mission is anti-submarine warfare.

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The Federal Reserve Bank of Atlanta has selected Raphael Bostic as its new president, replacing Dennis Lockhart after his retirement last month. 

In a statement by Thomas A. Fanning, chairman of the board of the Atlanta Fed, he said Raphael W. Bostic will become the 15th president and chief executive officer of the Federal Reserve Bank of Atlanta effective June 5, 2017. Bostic, 50, succeeds Dennis Lockhart, who retired from the Atlanta Fed on Feb. 28, 2017. The appointment was jointly approved by eligible directors of the Atlanta Fed’s board of directors, all nonbankers by law, and the Board of Governors of the Federal Reserve System in Washington, D.C.

Bostic was a senior economist on the Fed board in Washington from 1995 to 2001, working in the monetary and financial studies section. He is currently a University of Southern California professor with expertise in urban development, and was assistant secretary at HUD for policy development and research during the Obama administration.

Oddly, Bostic has no prior experience at Goldman Sachs, as the bank now appears more focused on the executive branch.

Bostic has a doctorate in economics from Stanford University and a BA from Harvard University.

More details from the press release:

Atlanta Fed Names Bostic New President and Chief Executive Officer

Bostic is currently the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the Sol Price School of Public Policy at the University of Southern California (USC), a position he has held since 2012.

“We are very pleased that Raphael will join the Atlanta Fed as its president and chief executive officer,” said Fanning, who is also chairman, president and chief executive officer of Southern Company. “He is a seasoned and versatile leader, bringing with him a wealth of experience in public policy and academia. Raphael also has significant experience leading complex organizations and managing interdisciplinary teams. He is a perfect bridge between people and policy.”

From 2009 to 2012, Bostic served as assistant secretary for Policy Development and Research at the U.S. Department of Housing and Urban Development (HUD). In that Senate-confirmed position, Bostic was a principal adviser to the secretary on policy and research, with the goal of helping the secretary and other principal staff make informed decisions on HUD policies and programs, as well as on budget and legislative proposals.

Bostic arrived at USC in 2001. There, he served as a professor in the School of Policy, Planning and Development. His work spans many fields, including home ownership, housing finance, neighborhood change and the role of institutions in shaping policy effectiveness. He was director of USC’s master of real estate development degree program and was the founding director of the Casden Real Estate Economics Forecast.  He served the Lusk Center for Real Estate as the interim associate director from 2007 to 2009 and as the interim director from 2015 to 2016.

Bostic worked at the Federal Reserve Board of Governors from 1995 to 2001, serving as an economist and then a senior economist in the monetary and financial studies section, where his work on the Community Reinvestment Act earned him a special achievement award. While working at the Federal Reserve, he served as special assistant to HUD’s assistant secretary of policy development and research in 1999, and also was a professional lecturer at American University in 1998.

Commenting on his selection, Bostic said, “The Reserve Banks are vital contributors to our nation’s economic and financial success. I’m excited about the opportunity to work with the Bank’s well-respected staff in advancing the excellent reputation this organization has built over many years. In my role as president of the Atlanta Reserve Bank, I also look forward to confronting the challenges the Federal Reserve faces in today’s increasingly global and rapidly changing economy.”

Bostic was born in 1966 and grew up in Delran, New Jersey. A high school valedictorian, he graduated from Harvard University in 1987 with a combined major in economics and psychology—disciplines he believes are intimately interrelated. After a brief stint in the private sector, Bostic earned his doctorate in economics from Stanford University in 1995.

Bostic serves as a board member of Freddie Mac, the Lincoln Institute of Land Policy and Abode Communities. He is a fellow of the National Association of Public Administration, vice president of the Association of Public Policy and Management, a member of the board of trustees of Enterprise Community Partners, and a research advisory board member of the Reinvestment Fund.

As president of the Atlanta Fed, Bostic will lead one of the 12 regional Reserve Banks that, with the Board of Governors, make up the Federal Reserve System, the nation’s central bank. The Atlanta Fed is responsible for the Sixth Federal Reserve District, which encompasses Alabama, Florida and Georgia and portions of Louisiana, Mississippi and Tennessee. As its key functions, the Atlanta Fed participates in setting national monetary policy, supervises numerous banking organizations and provides a variety of payment services to financial institutions and the U.S. government. Bostic will have overall responsibility for these functions and will represent the Sixth Federal Reserve District at meetings of the Federal Open Market Committee, the policymaking body within the Federal Reserve that sets monetary policy for the nation.

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A few weeks ago, Mario Draghi, the president of the ECB, and ECB member Weidmann confirmed the interest rates would continue at a relatively low level as this would be very helpful for the governments of Eurozone countries to get their finances back under control. This indeed seemed to be absolutely necessary to us, and in a previous column we already pointed out the devastating impact on the public finances should the interest rates on government debt increase by 1-2% on average.

Hundreds of billions of euro’s per year would have to be found to simply just cover the increased interest bill, without pushing through any fundamental changes. The low interest rate policy has been on the forefront for several years now, and after starting an asset purchase program, the ECB confirmed in 2016 that despite spending tens of billions of euros on asset purchases on a monthly basis, the interest rate policy would continue until after the asset purchase program ended.

This was confirmed a few weeks ago, but in a surprising move, apparently the European Central Bank did discuss a higher interest rate at the most recent meeting. And that’s quite surprising.

Source: Bloomberg

After all, why would one start to increase the benchmark interest rates if it’s still purchasing assets, which is a more direct way  to impact the financial markets? After all, the ECB literally said it is reducing the asset purchase rate from next month on, by reducing the size of the program by 25%.

“ We continue to expect them [the interest rates] to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that we will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of this month and that, from April 2017, our net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017”

One of our main theories would be that once the ECB starts to increase the deposit rates, the health of the financial institutions in Europe would improve as they would no longer have to pay the ECB to park their money at the central bank.

Source: Bloomberg

This could actually be the only real reason for an interest hike, and the use of a ‘higher inflation rate’ as an excuse should not be accepted. After all, this is what the ECB statement literally says:

“This reflected mainly a strong increase in annual energy and unprocessed food price inflation, with no signs yet of a convincing upward trend in underlying inflation. Headline inflation is likely to remain at levels close to 2% in the coming months, largely reflecting movements in the annual rate of change of energy prices. Measures of underlying inflation, however, have remained low and are expected to rise only gradually over the medium term”

Read the previous quote again, slowly. There are NO signs of underlying inflation. It didn’t say there were ‘few’ signs or ‘some’ signs, no, there are NO signs of underlying inflation, and only the ‘headline’ inflation is moving. And we have a certain feeling the word ‘headline inflation’ will become more common now.

But it all boils down to one thing. Did Mario Draghi lie? Will we see a rate hike before winding down the asset purchase program? And why so? The next few weeks and months will be very interesting on this front, and should the ECB indeed be planning to step up its interest rates, you can be sure you will see board members hinting at it in the media the next few months.

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Digital Gold On The Blockchain – For Now Caveat Emptor

– Bitcoin surpasses gold price – a psychological and arbitrary headline 

– Royal Mint blockchain gold asks you to trust in the UK government

– Royal Canadian Mint and GoldMoney blockchain product asks you to trust in government and the technology, servers, websites etc of the providers

– Invest in a gold mine using cryptocurrency – but wait until 2022 for your gold and trust the miners that it is there

– Blockchain and gold will likely make a “good team”, but they’re not ready yet

Are we nearly there yet? Gold on the blockchain.

In the last few weeks there have been significant developments in the world of gold, digital gold, blockchain and bitcoin. Those who have expressed an interest in gold investment, may have received articles from friends and family about how bitcoin prices reached parity with the yellow metal.

We have long argued that bitcoin and gold should be seen as complementary assets. But not everyone agrees and it doesn’t make a good story. Given bitcoin was first touted, and still is by some, as ‘digital gold’ or ‘as good as gold, but better’ then it has been inevitable that each time there is a significant movement in the bitcoin price then the media starts once again to pitch them against one another in a simplistic ‘cash of the currency titans’ narrative.

Below, we ask if there should be all this hype when a digital currency reaches parity with gold, and what this means for blockchain products such as the Royal Mint’s RMG or OzcoinGold which is purporting to be the first gold-backed cryptocurrency – fyi – there have been many attempts.

Ultimately it comes down to investing in and legally own a piece of gold that will serve your portfolio in the same way it has served millions of people in years gone by – as an asset that is a form of financial insurance, that cannot be devalued by central banks and will not be confiscated whether through bail-ins or more forceful means.

If using gold, blockchain and bitcoin together means that investors’ portfolios can meet the above criteria then we are on the dawn of something very exciting, but as you will see from the below, we don’t believe that we are quite there yet.

One bitcoin or an ounce of gold?

Let’s first address why bitcoin exceeding the gold price is or isn’t a big deal.

Lots of things cost more than an ounce of gold, the handbag I am pining for, a night at the seven-star Burj Al Arab or a gold MacBook Pro. So what? You might ask. Exactly, if lots of things cost more than a lump of gold, then why all the fuss about a bitcoin?

Especially when most of the people making a fuss couldn’t really tell you what a bitcoin is, and no one really knows how to trade using this information.

Whilst we can argue that the bitcoin price superseding the gold price is arbitrary, we can’t deny that this it is significant psychologically.

As noted above, bitcoin is often hailed as a form of digital gold, one that is perhaps more convenient and up-to-date with this technological world. Whether you agree or not, many people do hold this opinion and it is one that is widely reported on, hence the psychological importance of this price move.

There are many naysayers in the world of bitcoin and gold. Some would class them as two separate asset class, to them gold is a commodity and bitcoin is a technology. It still takes a lot of persuasion to the mainstream that both are currencies and that both manage to be so without the control of central banks, monetary policy and borders to restrict them.

This is why it is exciting when they reach parity or bitcoin exceeds gold. It means that more of the world is waking up to the issues with fiat money. It does not mean that bitcoin is better than gold nor does it mean that the world has flipped on its head and more people would rather own a bitcoin than hold a piece of gold.

The gold market is still worth more than 300 times that of the 16.2 million bitcoins in circulation. And if you consider the size of the $20 billion bitcoin market next to the Facebook, Amazon, Netflix and Google (FANGs) of the world then you’re not looking at something that is about to turn the world upside down.

Bitcoin is also incredibly volatile, despite calming down in recent years, and can still react like a hormonal teenager to an government announcement or ruling.

Just this weekend, bitcoin collapsed 18% after the U.S. regulator, the Securities and Exchange Commission (SEC), rejected a proposal by the Winklevoss twins for a publicly traded fund based on the digital currency. As Bloomberg put it, this dashed “hopes that a government-approved investment vehicle would lead to wider interest in virtual money.”

This volatility is likely to be the biggest barrier to it gaining the widespread adoption that gold already has – especially in the Asian world.

However, as I often tell people, bitcoin is incredibly young. Bitcoin fans (myself included) are getting excited about this as, given the short history of the cryptocurrency compared to the likes of gold and the masters of the online universe, its future price movements seem heavily weighted to the upside. Just like gold, it cannot be printed at will, devalued, confiscated (whether legitimately or by bail-in).

We cannot know the future of bitcoin when consortiums such as R3 are backing away from blockchain, or companies such as Microsoft, Intel and JPMorgan are embracing Ethereum.

The high bitcoin price tells us more about what we don’t know that what we do – we know it is likely to go higher but we have no idea how high, we know that it is being taken seriously but we do not know what this means for its role as an investment or monetary option.

The main lesson to learn from this price hike is that bitcoin is here to stay and that more people are looking for alternatives outside of the fiat monetary system. This is good for the gold market and those who already own a diversified portfolio including gold.

The downside to the hike in the bitcoin price is that whilst a price climb suggests more trust in the currency, the mainstream still like to play on the falsehood that it is anonymous and ‘unbacked’ by a central bank or authority, and so digital gold providers can take advantage of this. And this is where the likes of the government-owned mints or cryptocurrency builders are stepping in.

Royal Mint expects a gold rush

The government would like you to give them some money. It’s a great deal, honestly. You give them some money and they won’t charge you for keeping it. CME group are helping them to take your money and blockchain is also involved somehow. What do you think? Fancy handing over some of your life savings? No?

Funny that. The above is exactly what is going on. Except there are a couple of steps I didn’t mention. The government would like your money but would prefer that you bought gold from them first and they kept a hold of it. It seems to make the process of handing over funds a lot more gentlemanly, or British if you like.

Under the guise of investing in gold, the Royal Mint claims that they are ‘bringing to market a new way to invest in and digitally trade physical gold bullion.’

When the government-owned Royal Mint announced a new digital gold investment service entitled RMG, in December, they did so with much fanfare and excitement.

Despite a lack of mention of it in their recent literature, RMG uses blockchain technology. As we explained in December

“As one would expect from a trading solution using blockchain, it will ‘log each transaction’. The two parties [Royal Mint and CME Group] will collaborate on a digital gold asset called Royal Mint Gold (RMG) and will ‘transform the way traders and investors trade, execute and settle gold.”

We also quoted the economist Ashe Whitener, back in December, who echoed our thoughts:

“In my opinion, this is only news because the Royal Mint is basically a government-owned entity experimenting with blockchain. Just because something tangible like gold has a serial number on a blockchain, doesn’t mean that it is any more secure, safe or less risky.

Since the underlying asset is still physical, we still must place our trust with the Mint in terms of vaulting the gold. So nothing here really changes.”

More information has been released in recent weeks, but it hasn’t added much meat to the bone of this latest digital gold product.

The fact remains that the Royal Mint have released a digital gold platform, following in the footsteps of BullionVault.com and GoldMoney.com that allows you to buy and sell one gram at a time. Once again, we have to draw and attention to (and ask why) the fact that the government-run Royal Mint is getting the press and naive gold investors excited about RMG, when really very little has changed.

We recently wrote about unallocated gold. We mentioned that whilst new gold investors might think that owning gold without having to pay storage fees seems highly attractive, it also comes with risks and, arguably hidden costs. Unallocated gold is free to store because the bank or institution that you have chosen to buy it through, is using it for it’s own purposes.

The Royal Mint’s RMG is not unallocated, however it does come without storage fees. We have long pointed out the risks in owning unallocated gold and one has to be extremely confident of the solvency of the provider.

We’re all familiar with the expression ‘if it sounds too good to be true then that’s because it usually is. The Royal Mint is owned by HM Treasury, it pays an annual dividend their way every year. It goes without saying that the United Kingdom is pretty broke at the moment

and with the fallout of Brexit still playing out, against a backdrop of geopolitical uncertainty who knows how much worse it will become.

And when it does, how is the government planning on paying to keep the country going? Who knows, but it’s all happening at the same time that the government is trying to encourage you to hold gold in their vaults.

One other odd thing that they are offering is to ‘buy back’ any RMG should the price of RMG fall below the spot price of gold, “The Royal Mint will buy back any RMG if the trading price of RMG falls below the spot price of gold for longer than 24 hours it will be bought back.”

This surely goes against the idea of owning gold? The beauty of holding gold is that there is a global market for it and it is one of the most liquid markets in the world which protects against price risk. If the gold you own comes with a sticker on it that says it can only be sold as RMG then what was the point in buying it in the first place?

Of course, the Royal Mint are also hoping that the reverse might happen: that RMG will begin to trade at a premium to the gold price. But when this happens, why would people look to buy this when the gold market is one of the most global and liquid ones in existence.

The beauty of gold is that it is gold. We discourage buying gold jewellery as an investment as it receives a huge mark-up quite simply because it is jewellery. We also discourage buying collector coins as they too receive a huge mark-up which does not reflect the gold or silver content.

The Royal Mint is hoping RMG will trade higher than the market-price of a gold-gram because of its association with the 1,000 year old Mint. But, surely then, on the flip side an association with a government-owned institution is not always going to be a positive thing.

Is the Loonie about to get touch of gold?

Let’s look to the Royal Canadian Mint to get more of an idea about where this might go. Last year digital gold provider GoldMoney and the RCM announced that they would be joining forces.

Customers of GoldMoney are able to buy Canadian Mint gold via the company’s permissioned  blockchain. We could go into the tech of all of this and ask why a permissioned blockchain is even necessary (in brief – you can just use a secure ledger system, there’s no need for a private blockchain to overcomplicate things. It just sounds good) but instead we note the same issue we do with RMG. The Royal Canadian Mint is owned by the Canadian Government.

While we are big fans of tech and technology solutions in the gold market, it must be acknowledged that there are risks in investing in gold through the intermediary of digital gold platforms.

Royal Canadian Mint and GoldMoney blockchain product asks you to trust in government and the technology, servers, IT, websites etc of the digital gold platforms and their portals.

As we warned recently

Buying gold through an electronic platform can be very convenient and very fast. You can buy significant sums and pay low spreads and low fees, your storage costs for such investments can be extremely cheap too.

These electronic platforms spend a lot of money advertising, and some even claim to give you allocated gold. We do not consider a part ownership of a large 400 oz bar of gold as being allocated. You are in fact a pooled gold investor and one who has no idea of what particular part of a gold bar you own. You can not, unlike GoldCore Secure Storage, drive to a vault in Zurich, Singapore, Hong Kong, Dubai or London and take delivery of your gold, without entering into a sale transaction.

In addition many such platforms force you to only buy and sell through their market board and their online platform and website. Digital gold platforms are “closed loop systems” where liquidity and pricing are dependent on a single platform, website and company. A buyer can only buy and sell through that one online platform. An investor is in effect “captive”.

Besides the dual technological and liquidity risk, there is also the sovereign risk, An investigation by CBC News found that, just two years ago the Mint lost money and continues to struggle, “Revenue is down sharply, jobs have been chopped, morale is in the tank, and formerly successful lines of business are being shut down — even as the mint spends millions of dollars on new executive offices.”

In the third-quarter of 2016 revenues were down by 27% and profits by 61%. All of this is despite efforts to raise funds such as minting collectible coins.

Similar to the RMG, storage is free (for purchases up to 1kg). We don’t need to repeat the above, save asking if this is a trend that will start to appear in other sovereign mints within countries that are part of the huge, growing debt-bubble that will inevitably pop.

To buy and store gold with a government institution is to go against the reasons to buy gold. Investors should not be fooled that the implementation of a blockchain, or the offering of free storage, suddenly means one can disregard centuries of logical gold investment as a store of value and a form of insurance against these very entities.

OzcoinGold

We’re perhaps being unfair to the Royal Mint and Royal Canadian Mint. They aren’t the only ones using the distrust in the monetary system, distrust of bitcoin, its increased profile and blockchain to their advantage.

One of the similarities drawn between gold and bitcoin is that they are finite. Gold is finite because it is natural, it has to be mined from the earth (let’s ignore the mad notion of space mining for now!) and alchemy still eludes us.

One gold mining company has taken advantage of this and decided that the best way to raise money (usually a very expensive process full of regulatory and legal costs) is by issuing its own cryptocurrency which is 2/3 backed by gold from its mine. The other third is backed by gold in the Perth Mint.

The company proudly state that the coin is backed by 24k gold. 24k is an odd way for gold bullion dealers to describe the product, we usually refer to gold’s millesimal fineness i.e. in three or more digits, rather than karats, most selling 999.99 or 999.999 (if you’re Chinese). 24k is just 999 and therefore not quite as pure, however this is the highest gold content for jewellery.

Unsurprisingly, as the majority of it is still in ground, there are no storage fees to pay on the gold and lucky investors can come back in March 2022 and redeem their currency for physical 24k coins.

When investors choose to invest in physical gold, they often do with the intention of holding it for the long-term but they are also doing it as a form of insurance. The joy of buying gold is that when done properly (as allocated and segregated gold coins and bars) is that you can take delivery of it at any time. In the above scheme, this is not possible. There is no possible way that the gold can be allocated or segregated from others’ holdings. The ability to do this, is the attraction of investing in gold.

Gold investment is also done to reduce counterparty risk. This way to invest in gold relies hugely on counter parties, the main one being the ability of the mining company to actually efficiently run their gold mine so as to extract the gold. Where are the guarantees that this will happen? What happens if the company goes bust? There will be no gold for those investors who thought they were buying a safe haven and form of financial insurance.

We support the gold mining company, this is an innovative way to raise funds. However, it must not be presented under the guise of innovative gold investment and as a quite high risk speculation.

What does it all really mean?

Whatever you think of bitcoin, gold and the various digital offerings, one can’t ignore what their existence and growing interest in them means: there are several serious risks both today and on the horizon that will see investors favour those assets that cannot be manipulated, devalued or confiscated.

And this all boils down to why we invest in and more importantly legally own physical gold, or even bitcoin – because we want to diversify and own a store of value.

So why would you choose to buy gold that is being ‘protected’ by the very government that is at least in part responsible for driving you to own physical bullion precious metals in the first place? Or why would you choose to buy gold that you are unable to retrieve in your preferred coin or bar format at short notice?

We shouldn’t, however, dismiss government-backed institutions offering gold products and gold-backed blockchain products, with the same brush. The way people have chosen to invest in physical gold has evolved over hundreds of years, thanks to technology. Our clients from over fifty countries around the world would not be able to be invest in allocated, segregated gold through us, if it were not for technology.

Blockchain really can contribute in this space, but we do not believe that those examples mentioned above are the right ones. Digital gold is digital gold and physical gold is physical gold.

There is a huge opportunity for digital gold and blockchain to come together, but it is probably best if the combination does not involve government institutions seeking to profit from investors and store of value gold buyers seeking the hedging qualities and safe haven qualities of actual gold bullion.

 

Gold and Silver Bullion – News and Commentary

Gold prices steady, investor focus shifts to Fed (Reuters.com)

Five Things You Need to Know to Start Your Day (Bloomberg.com)

Iranian Animation Depicts Battle With U.S. Forces in Gulf (Bloomberg.com)

India gold recycling plan fails to tempt households (Reuters.com)

Bitcoin Plummets 18% as SEC Rejects Winklevoss ETF Proposal (Bloomberg.com)

Gold’s Dismal Week Has Investors Asking What’s After March Hike (Bloomberg.com)

Managed Money Traders M.I.A. in Silver in Friday’s COT Report – Steer (GoldSeek.com)

Sustained double-digit losses on bond holdings (BankUnderground.co.uk)

Stocks Mini-Bubble Could Burst at Any Moment – Rickards (DailyReckoning.com)

Are Central Banks Losing Control? – Hugh Smith (DailyReckoning.com)

Gold Prices (LBMA AM)

13 Mar: USD 1,207.80, GBP 989.79 & EUR 1,132.07 per ounce
10 Mar: USD 1,196.55, GBP 983.56 & EUR 1,127.15 per ounce
09 Mar: USD 1,204.60, GBP 991.39 & EUR 1,140.64 per ounce
08 Mar: USD 1,213.30, GBP 997.70 & EUR 1,149.00 per ounce
07 Mar: USD 1,223.70, GBP 1,003.56 & EUR 1,157.62 per ounce
06 Mar: USD 1,231.15, GBP 1,004.74 & EUR 1,162.82 per ounce
03 Mar: USD 1,228.75, GBP 1,005.12 & EUR 1,168.05 per ounce

Silver Prices (LBMA)

13 Mar: USD 17.02, GBP 13.92 & EUR 15.95 per ounce
10 Mar: USD 16.89, GBP 13.91 & EUR 15.92 per ounce
09 Mar: USD 17.14, GBP 14.10 & EUR 16.23 per ounce
08 Mar: USD 17.40, GBP 14.32 & EUR 16.48 per ounce
07 Mar: USD 17.70, GBP 14.52 & EUR 16.74 per ounce
06 Mar: USD 17.81, GBP 14.53 & EUR 16.83 per ounce
03 Mar: USD 17.66, GBP 14.44 & EUR 16.76 per ounce

Recent Market Updates

– Gold $10,000 Coming – “Time To Prepare Is Now”
– Silver Very Undervalued from Historical Perpective of Ancient Greece
– Gold Investing 101 – Beware Unallocated Gold Accounts With Indebted Bullion Banks and Mints (Part II)
– Gold Investing 101 – Beware eBay, Collectibles and “Pure” Gold Coins that are Gold Plated
– “Think About and Prepare For” Euro Catastrophe
– Silver On Sale – 4% Fall On Massive $2 Billion of Futures Selling
– Trump Avoid Debt Crisis ? “Extremely Unlikely” – Rickards
– Art Market Bubble Bursting – Gauguin Priced At $85 Million Collapses 74%
– Gold’s Value – Weight, Beauty, Rarity, Peak Gold and Secure Storage – Interview
– Oscars Debacle – Movies More Costly As Dollar Devalued
– Gold Up 9% YTD – 4th Higher Weekly Close and Breaks Resistance At $1,250/oz
– The Oscars – Worth Their Weight in Gold?
– Gold To Benefit from Rising Inflation and Higher Than “Official” China Gold Demand

Interested in learning more about physical gold and silver?
Call GoldCore and speak with a Gold and Silver Specialist today!

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A few weeks ago we noted that none other than John Boehner, the former Republican Speaker of the House, scoffed at the idea of repealing and replacing Obamacare as he essentially predicted that Republicans would become their own worst enemy (see “Boehner: Full Repeal And Replace Of Obamacare ‘Is Not Going To Happen’“):

“[Congressional Republicans are] going to fix Obamacare – I shouldn’t call it repeal-and-replace, because it’s not going to happen,” he said.

 

“I started laughing,” he said. “Republicans never ever agree on health care.”

 

“So this is not all that hard to figure out.  Except this, in the 25 years I served in the United States Congress, Republicans never, ever, not one time agreed on what a healthcare proposal should look like.  Not once.”

 

“And all this happy talk that went on in November and December and January about repeal, repeal, repeal…if you pass repeal without replace, you’ll never pass replace because they will never agree on what the bill should be.  The perfect always becomes the enemy of the good.”

Now, it’s looking increasingly like Boehner may have been right as the so-called “TrumpCare” attempt to repeal and replace Obamacare will face a number of challenges, starting this week, in its journey to Trump’s desk.  The first challenge comes from the Congressional Budget Office (CBO) which is expected this week to release its score of the legislation.  The CBO is widely expected, even among Republicans, to estimate that millions of people would no longer have health insurance under the plan.  Per The Hill:

With that in mind, Republicans are already looking to discredit the office and downplay the importance of the score.

 

“If you’re looking at the CBO for accuracy, you’re looking in the wrong place,” White House press secretary Sean Spicer said earlier this week.

 

Ryan, meanwhile, compared CBO scores to a “beauty contest.”

 

“Our goal is not to show a pretty piece of paper that says we’re mandating great things for Americans. Our goal is to get a vibrant health care system that’s patient-centered, that brings down costs, that increases choices, that has a marketplace so that we lower the costs and increase, and therefore increase the access to affordable care,” he said.

 

Then there are the Republican governors from states that took ObamaCare’s Medicaid expansion who are also wary of the healthcare legislation.

“Phasing out Medicaid coverage without a viable alternative is counterproductive and unnecessarily puts at risk our ability to treat the drug addicted, mentally ill, and working poor who now have access to a stable source of care,” Ohio Gov. John Kasich (R) said in a statement Wednesday.

 

The governors met with the White House and GOP leadership about ObamaCare and Medicaid during their annual conference earlier this month, but Nevada Gov. Brian Sandoval said this week the resulting plan “doesn’t include anything that the governors have talked about.”

 

“We’ve said all along, ‘work with the governors,’ that it should be a governor-led effort and for the Congress to rely on their governors,” Sandoval said.

And then there are the conservative elements of the splintered Republican party that would prefer to simply repeal Obamacare altogether, without a replacement plan, and start from ground zero.  While Paul Ryan has guaranteed that his bill can pass the House, assuming all Democrats vote no, it would only take 21 House GOP defections to kill the bill.  That said, Republican control of the Senate is much more narrow and several Senators, including Tom Cotton (Ark) and Rand Paul (KY), don’t seem all that eager to support the current iteration of the bill.

Sen. Tom Cotton (R-Ark.) said the House GOP should “start over” on its replacement plan.

 

“House health-care bill can’t pass Senate without major changes,” Cotton Tweeted Thursday.

 

“To my friends in House: pause, start over. Get it right, don’t get it fast.”

 

The legislation has been criticized by at least 11 senators, including some from Medicaid expansion states who don’t want to see the expansion rolled back.

 

Conservatives like Sen. Rand Paul (R-Ky.), meanwhile, are backing the Freedom Caucus’s push for repealing more of ObamaCare. Paul has introduced his own legislation to repeal ObamaCare.

All political rhetoric or is Trump about to get bogged down in the swamp?

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A pivotal, catalyst-filled week for global markets is now underway as investors brace for the second US interest rate hike in 2 quarter, a Dutch election, the expiration of the US debt ceiling deal, the imminent invoking of Article 50 by Theresa May, the first G20 finance ministers’ meeting of the Trump era and perhaps the disclosure of Trump’s proposed budget.

While the key events on the US economic docket will be retails sales and Wednesday’s CPI report, it is the slew of geopolitical and central bank-linked events and announcements which will have a profound impact on capital markets.

The most important, if mostly priced in, event is this FOMC announcement on Wednesday where the February employment report all but confirmed the Fed’s view that the US labor market is at or very close to full employment, giving them a bright green light to raise rates at the March meeting and continue its message of further normalization. Traders view a quarter-point Fed hike this week as a virtual certainty and will be watching the central bank’s policy decision for signals on what will come next. Futures indicate the market is moving toward policy makers’ December projection of three rate increases in 2017. It would be the first year with multiple Fed hikes since 2006.

Another key event is the Dutch general election on March whose results should be known on Thursday morning. Focus will be on the performance of the anti-EU, anti-immigration party PVV, and party leader Geert Wilders’ pledge to hold a referendum on EU membership. But current polls do not suggest that he is in a position to achieve an absolute majority, or form a governing coalition and take the country out of the EU. The current government will continue in office until a new coalition is
formed (that can take weeks, or months). Geert Wilders’ Freedom Party, which may be emerge as the biggest party from the elections, is unlikely
to join the new government. Whether the perceived populist trend is
shaken is the potential surprise.

Also on Wednesday the US debt ceiling limit expires on Wednesday and is due to be reinstated on Thursday absent some last minute breakdown in communication.

Additionally, UK Prime Minister May is expected to invoke Article 50 of the Treaty of Lisbon as soon as Tuesday. This begins the long goodbye from the EU. There is no surprise in the event, though perhaps the EU reaction (apparently they have prepared a reaction) has the potential to surprise.

Elsewhere, President Trump may also reveal his first budget outline for fiscal year 2018 on Thursday.

Speaking of Trump, the world’s finance ministers and central bankers convene in the German spa town of Baden-Baden on March 17-18, their first meeting since Donald Trump’s U.S. election victory in November where his protectionist stance on international trade is likely to be a key issue.

Then there are the other central banks:

• The BoJ is expected to maintain the status quo for monetary policy, leaving its long rate and short rate targets unchanged at 0.0% and -0.1%, respectively.
• The SNB is also expected to take no action. FX intervention will remain the central bank’s main policy tool to alleviate some of the pressure on the CHF on Euro area election calendar risks.
• The BOE is likewise expected to keep rates on hold.

In other data:

• In the US, beyond the FOMC we have inflation numbers, housing data, industrial production and consumer confidence amongst others.
• In the Eurozone, focus is on German ZEW and ECB speakers.
• In the UK, beyond the BoE meeting, we mainly await labor data.
• In Japan, we get BoJ decision, PPI, machine orders and tertiary index.
• In Australia, we have labor data. While New Zealand releases GDP and current account.
• In Scandies, beyond Norway’s C.B. meeting, Sweden releases labor and inflation numbers.
• In Switzerland, The SNB holds monetary policy meeting on Thursday
• In China, focus is on retail sales, fixed asset investments and industrial production

A summary of the economic events in the US is shown below:

And a breakdown of all global catalysts in the next few days:

DB’s Jim Reid takes us through the week’s key events day by day:

It’s a fairly quiet start to proceedings this week with little of interest in Europe this morning and just the labour market conditions index in the US this afternoon.

Tuesday kicks off in China where we’ll get the February retail sales, fixed asset investment and industrial production data. In Europe we’ll get the final February CPI revisions in Germany as well as the March ZEW survey and January IP for the Euro area. Over in the US tomorrow we’ve got February PPI and the NFIB small business optimism reading.

Wednesday starts in Japan where the final January IP revisions are due. Over in Europe we’ll get the final CPI revisions for France in February along with the January/ February employment numbers in the UK. Wednesday is a huge day in the US with February CPI, March empire manufacturing, February retail sales, January business inventories and the March NAHB housing market index all coming before the FOMC meeting outcome in the evening.

Thursday’s early focus will then be on the BoJ policy meeting outcome before the BoE outcome is then due around lunchtime. Data on Thursday includes Euro area CPI and US housing starts, building permits, initial jobless claims, JOLTS job openings and Philly Fed manufacturing index.

We end the week on Friday with Euro area trade data, US IP and the University of Michigan consumer sentiment index for March.

Away from the data the only notable central bank speak this week comes from Draghi this afternoon when he delivers the opening remarks at a conference. The draft Brexit law also returns to the House of Commons today following the House of Lords amendments so that is worth watching. President Trump is also due to meet German Chancellor Merkel at the White House on Tuesday. The other notable event is of course the Dutch election this Wednesday. China’s NPC also concludes on Wednesday while the US debt ceiling limit expires on Wednesday and is due to be reinstated on Thursday. The G20 finance ministers meeting also kicks off on Friday. So plenty to keep us busy.

* * *

Finally, here is Goldman with a breakdown of key US events and consensus estimates:

The key economic releases this week are the CPI and retail sales reports on Wednesday. The March FOMC statement will be released on Wednesday at 2PM.

Monday, March 13

• There are no major economic data releases.

Tuesday, March 14

• 06:00 AM NFIB small business optimism index, February (consensus 105.6, last 105.9)
• 08:30 AM PPI final demand, February (GS +0.1%, consensus +0.1%, last +0.6%); PPI ex-food and energy, February (GS +0.2%, consensus +0.2%, last +0.4%); PPI ex-food, energy, and trade, February (GS +0.2%, consensus +0.2%, last +0.2%): We forecast that headline PPI rose 0.1% in February, reflecting an increase in producer food prices but a retracement in energy prices. We estimate PPI ex-food, energy and trade services rose by 0.2%. Producer prices were stronger than expected in January, as headline PPI increased 0.6% (mom), supported by higher energy prices. Core inflation was also firm, as PPI ex-food, energy and trade services rose 0.2%.

Wednesday, March 15

• 08:30 AM CPI (mom), February (GS flat, consensus flat, last +0.6%); Core CPI (mom), February (GS +0.15%, consensus +0.2%, last +0.3%) CPI (yoy), February (GS +2.7%, consensus +2.7%, last +2.5%); Core CPI (yoy), February (GS +2.2%, consensus +2.2%, last +2.3%); We expect a below-trend increase in core CPI in February, reflecting a decline in the communications category driven by the release of Verizon unlimited data plans, weakness in used car pricing, and increased discounting at mall-based retailers associated with delayed tax refunds. Our estimate of 0.15% (mom) for core CPI would result in the year-over-year rate decelerating 10bp to 2.2%. Owners’ equivalent rent inflation slowed further last month to +0.24%, a pace roughly consistent with industry sources that have shown deceleration in rent growth throughout 2H16. We look for a stable or modestly higher inflation reading in that category. On the positive side, we expect inflation to reaccelerate in the education and new cars categories, and we also expect a small boost from the partial-month impact of the January 22nd postage price hike (+2¢ for first class mail). Import prices have also firmed in recent months, with a 0.3% increase in import prices excluding fuels in February. Imported consumer goods prices also rose 0.2% for a second month; We expect a decline in seasonally adjusted consumer energy prices to weigh on headline CPI, where we estimate a flat month-to-month reading and a year-over-year acceleration of 20bp to 2.7% (due to base effects).
• 08:30 AM Retail sales, February (GS -0.2%, consensus +0.1%, last +0.4%); Retail sales ex-auto, February (GS -0.2%, consensus +0.1%, last +0.8%); Retail sales ex-auto & gas, February (GS -0.2%, consensus +0.2%, last 0.7%); Core retail sales, February (GS -0.2%, consensus +0.2%, last +0.4%): We expect a 0.2% drop in February retail sales reflecting significant consumer cash flow disruptions caused by delayed tax refunds, which we estimate affected as many as 25-30 million households. Tax refund distributions converged back to normal seasonal levels by the first week of March, a few weeks after the legal deadline constraining the IRS had passed. However, the sharp pickup in distributions did not begin until after Presidents’ Day weekend (Feb 18-20), suggesting that significant cash flow constraints affected millions of households for over half of the month. Additionally, the tax refund shortfall (relative to 2016) still totaled $15bn during the final weekend of February. Broadly disappointing same store sales reports from mall-based retailers provide additional evidence of the severity of the impact, in our view. On the positive side, non-store sales seem likely to pick up after a rare decline last month, though the same logic regarding consumer cash flow constraints suggests any rebound should be fairly muted. Factoring in these considerations, we estimate the key retail control gauge declined 0.2% (mom) following +0.4% in January. We also forecast a 0.2% decline in headline retail sales, as well as in the ex-auto and the ex-auto ex-gas components.
• 08:30 AM Empire manufacturing survey, March (consensus +15.0, last +18.7)
• 10:00 AM Business inventories, January (consensus +0.3%, last +0.4%); Consensus expects business inventories to increase 0.3% in January, following an increase of 0.4% in the December report.
• 10:00 AM NAHB housing market index, March (consensus 65, last 65); Consensus expects the NAHB homebuilders’ index to remain at 65, following a 2pt decline last month. While the softening was fairly broad-based, the index remains not far from cycle highs.

• 2:00 PM FOMC statement, March 14-15 meeting: As discussed in our FOMC Preview, we expect the FOMC to raise the target range for the funds rate by 25 basis points at the March meeting. In the post-meeting statement, we think the committee is likely to indicate that risks to the outlook are “balanced” (compared to “roughly balanced” previously). In the Summary of Economic Projections (SEP), we look for: (1) slightly higher median estimates for 2018-19 GDP growth; (2) unchanged unemployment projections but a slight upgrade to the 2017 core inflation projection; and (3) unchanged median dots for the funds rate, though risks are tilted to the upside.
• 04:00 PM Total Net TIC Flows, January (last -$42.8bn)

Thursday, March 16

• 08:30 AM Housing starts, February (GS +2.5%, consensus +1.1%, last -2.6%); Building permits, February (consensus -2.6%, last +5.3%): February weather featured unseasonably warm temperatures and below-average snowfall. Additionally, a sharp 58k rise in construction jobs is suggestive of an early start to the spring building season. Accordingly, we expect a 2.5% rise in housing starts, reversing the 2.6% pullback in January. We also believe favorable single-family fundamentals should help mitigate the negative impact of higher interest rates.
• 08:30 AM Initial jobless claims, week ended March 11 (GS 240k, consensus 240k, last 243k); Continuing jobless claims, week ended March 4 (consensus 2,053k, last 2,058k): We expect initial jobless claims to edge down 3k to 240k, after rebounding sharply last week due to the reversal of temporary factors – specifically, the timing of New York school holidays and automotive plant shutdowns. Accounting for temporary factors, the trend pace of initial jobless claims continues to drift lower, and we also note the year-to-date improvement in several energy-producing states, where claims remained low again last week.
• 08:30 AM Philadelphia Fed manufacturing index, March (GS +30.0, consensus +28.0, last +43.3): We expect the Philadelphia Fed manufacturing index to retrace lower to +30.0 in March, after unexpectedly jumping to a 33-year high of +43.3. The index is likely to remain at levels suggestive of moderate expansion in manufacturing activity.
• 10:00 AM JOLTS job openings, January (consensus 5,562, last 5,501)

Friday, March 17

• 09:15 AM Industrial production, February (GS +0.3%, consensus +0.2%, last -0.3%); Manufacturing production, February (GS +0.4%, consensus +0.4%, last +0.2%); Capacity utilization, February (GS +75.6%, consensus +75.5%, last +75.3%): We expect industrial production to increase 0.3% in February, likely reflecting a pickup in motor vehicle production and manufacturing production. Manufacturing production is likely to increase 0.4%, following a 0.2% rise in January. In the January report, industrial production fell 0.3%, mostly reflecting a weather-related drop in utilities.
• 10:00 AM University of Michigan consumer sentiment, March preliminary (GS 97.5, consensus 97.0, last 96.3); We expect the University of Michigan consumer sentiment index to rebound in March after pulling back 2.2pt last month from a cycle high of 98.5. Our forecast of a 1.2pt rise to 97.5 reflects further improvement in consumer surveys in late February and early March. The Conference Board’s consumer confidence index also rebounded in February to a new 15-year high.

Source: GS, BofA, DB

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Gold & Silver Mining stocks have had a rough few weeks, falling in excess of 15%, after a sharp post Christmas rally. Are they in trouble or about to bounce of newly created rising channel support?

Below looks at the Gold Bugs Index (HUI) over the past few years.

CLICK HERE TO ENLARGE CHART ABOVE

Gold Bugs index has created a series of lower highs since the highs back in 2011. Over the past year, the index is attempting to create a new series of higher lows and higher highs.

The recent decline in the index, took it down to 1-year rising channel (green shaded channel), where it might have created a “Weekly Reversal Pattern” (bullish wick) at (1) last week. This reversal pattern/bullish wick may be taking place at 1-year rising support. Each time the index has touched the bottom of this rising channel, it has created a bullish reversal wick. This potentially is the 3rd bullish reversal pattern/bullish wick, taking place at the bottom of the rising channel at (1).

Full Disclosure; Premium and Metals members tookn a position in this sector last week, with a tight stop below (1).

Gold Bugs bulls do NOT want to see 1-year rising channel support give way!!!

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