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Gold and Silver Prices
Gold ended the week lower as the dollar resumed strength following the release of a strong jobs data and support for additional interest rate hike.
"U.S. job growth accelerated in August, with wages notching up their largest annual increase in nine years, strengthening views the economy was so far weathering the Trump administration's escalating trade war with China.
"A public consultation period for proposed U.S. tariffs on an additional $200 billion of Chinese imports ended at 0400 GMT on Friday and tariffs could go into effect at any moment, though there is no clear timetable.
"'I'm struggling to (see) how the dollar could extend gains from here. Other central banks are becoming hawkish, the pound could come back up and the euro, once the ECB starts tightening. Gold is due for a rally,' Fawad Razaqzada, analyst at FOREX.com, said." ("Gold slips as dollar gains after strong US jobs data," Reuters, 09/07/18.)
Gold ended the week up $4.60, closing at $1,196.20. Silver ended the week down $0.35, closing at $14.16.
Gold likely to climb back to $1,350 an ounce by the end of 2018 - Scrap Register
Head of gold investments at State Street Global Advisors believes gold prices will push higher towards the end of the year with geopolitical tensions and could reach 1,350.
"Investors will have to wait a few more weeks before the gold market is ready to shake off its summer lulls, according to one gold market analyst.
"In an exclusive interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that he is expecting buying momentum to pick up by the end of September after the Federal Reserve raises interest rates for a third time this year and physical demand from important gold consumer nations increases in preparation for important holidays.
"… Milling-Stanley said that the market could recover just as quickly as it sold off. He added that gold prices could climb back to $1,350 by the end of the year, but said that the first hurdle comes in at $1,250 an ounce.
"'I think we could see $1,350, but it depends on how quickly momentum builds in the marketplace,' he said. 'I will be happy to see prices above $1,250 as that has been the mid-point of the trading range we have been in since Mid-2013,' he said.
"Some investors have been optimistic that the growing emerging market uncertainty will support gold prices by forcing the Federal Reserve to stop raising interest rates. But Milling-Stanley said he remains unconvinced that this could shift U.S. monetary policy.
"'The Federal Reserve runs its policy for the benefit of its own country,' he said. 'The U.S. economy is at the top of the Fed's agenda and because of that we should see a rate hike in September and fourth rate hike in December.'
"Currently, markets are pricing in a more than 90% chance of a September rate hike and a 70% chance of a fourth rate hike at the end of the year.
"Milling-Stanley added that confidence is falling that the U.S. central bank will continue to raise interest rates past 2018. He explained that inflation pressures are still not roaring higher, which suggests limited economic growth moving forward…
"Looking at emerging markets, Milling-Stanley stated that global gold demand could pick up as consumers buy the yellow metal to combat the ongoing debasement in their currencies.
"'I think we will continue to see good solid global demand for gold through the rest of the year,' he said.
"Milling-Stanley also said that he sees gold prices pushing higher late in the year as investors pay more attention to geopolitical turmoil as the U.S. quickly approaches the November mid-term elections.
"'According to political pundits, there is a very real possibility of change in both the House and the Senate,' he said.
Investors have been desensitized to geopolitical risk; but, for the remainder of the year I see this having greater focus.'" ("Gold likely to climb back to $1,350 an ounce by the end of 2018," Scrap Register, 09/04/18.)
JP Morgan's top quant warns next crisis to have flash crashes and social unrest not seen in 50 years - Son
JP Morgan analyst predicts a crisis will hit the markets causing crashes in stock prices and social unrest.
Sudden, severe stock sell-offs sparked by lightning-fast machines. Unprecedented actions by central banks to shore up asset prices. Social unrest not seen in the U.S. in half a century.
"That's how J.P. Morgan Chase's head quant, Marko Kolanovic, envisions the next financial crisis. The forces that have transformed markets in the last decade, namely the rise of computerized trading and passive investing, are setting up conditions for potentially violent moves once the current bull market ends, according to a report from Kolanovic sent to the bank's clients on Tuesday. His note is part of a 168-page mega-report, written for the 10th anniversary of the 2008 financial crisis.
"Kolanovic, a 43-year-old analyst with a Ph.D. in theoretical physics, has risen in prominence for explaining, and occasionally predicting, how the new, algorithm-dominated stock market will behave. The current bull rally, the longest in modern history by some measures, has been characterized by extended periods of calm punctuated with spasms of selling known as flash crashes. Recent examples include a nearly 1,600 point intraday drop in February and a 1,100 point decline in August 2015.
"'They are very rapid, sharp declines in asset values with sharp increases in market volatility,' Kolanovic, the bank's global head of macro quantitative and derivatives research, said in a recent interview. But those flash crashes occurred during a backdrop of a U.S. economic expansion; the new market hasn't been tested in the throes of a recession, he said.
"'If you have these liquidity-driven sharp sell-offs that come at the end of the cycle, or maybe even causes the end of the cycle, then I think you can have a much more significant asset price correction and even more significant increase in market volatility,' Kolanovic said.
No one to step in and buy
"In his report, Kolanovic explains how the major market trends that occurred after the 2008 crisis exacerbate selling during moments of panic. The massive shift from active to passive managed investments — he estimates that $2 trillion has moved that way in the past decade — has removed a pool of buyers who can swoop in if valuations tumble, he wrote.
"The rise of automated trading strategies is also a factor because many quant hedge funds are programmed to automatically sell into weakness, he said. Together, index and quant funds now make up as much as two-thirds of assets under management globally, and 90 percent of daily trading comes from those or similar strategies, he wrote.
"Basically, right now, you have large groups of investors who are purely mechanical," Kolanovic said. "They sell on certain signals and not necessarily on fundamental developments…Meaning if the market goes down 2%, then they need to sell."
"Lastly, electronic trading desks at banks and other firms tend to withdraw when markets get rough, removing liquidity and contributing to a cascading decline in prices.
The 'Great Liquidity Crisis'
"Kolanovic says that this potential meltdown in stock prices could cause the next financial crisis. His name for it: the Great Liquidity Crisis. (In markets, liquidity is a measure of the ease and speed a financial instrument can be traded without significantly impacting its price. For example, cash is highly liquid. Meanwhile real estate is usually illiquid.)
"If markets fall by 40 percent or more, the Federal Reserve would need to leap into action to prevent a spiral that led into depression, Kolanovic said. That could lead to unconventional actions, including direct purchases of equities, a move that Japan's central bank has already taken.
"'Suddenly, every pension fund in the U.S. is severely underfunded, retail investors panic and sell, while individuals stop spending,"' Kolanovic said. "If you have this type of severe crisis, how do you break the vicious cycle, the negative feedback loop? Maybe you stimulate the economy by cutting taxes further, perhaps even into negative territory. I think most likely is direct central bank intervention in asset prices, maybe bonds, maybe credit, and perhaps equities if that's the eye of the storm."
"In an hour long interview, Kolanovic said this scenario is less a prediction than a warning about a rising risk. He also said that the chance of a crisis happening are low until at least the second half of 2019. The exact timing of this crisis is uncertain but will be determined by the speed in which the Fed hikes interest rates and reverses bond purchases (a legacy of the last crisis), he said. The developing trade dispute with China could accelerate or delay the end of the cycle as well, he said.
"Kolanovic closes his report on an ominous note: "The next crisis is also likely to result in social tensions similar to those witnessed 50 years ago in 1968."
"That year saw the peak of both the Vietnam War and anti-war movement and the assassinations of Martin Luther King Jr. and Sen. Robert F. Kennedy. Today, the internet and social media are helping to polarize groups, and events including the U.S. election and Brexit show tensions that will probably worsen in the next crisis, he said.
"He was a bit more measured in his interview. If central banks can head off the worst of a crisis by providing a floor for asset prices, then the status quo will probably be maintained, he said.
"'If they don't manage to,' Kolanovic said, 'then you're spiraling into depression, social unrest and a lot more disruptive changes that can negatively affect returns for a very long time.'" (JP Morgan's top quant warns next crisis to have flash crashes and social unrest not seen in 50 years," Hugh Son, CNBC, 09/04/18.)
Trump's trade war with China is 'the biggest risk to the global economy,' BlackRock exec says - Meredith
Vice chairman of the world's largest money manager says President Trump's trade policies are the biggest threat to the global economy.
"President Donald Trump's trade policies pose the greatest threat to global economic growth, according to the vice chairman of the world's largest money manager.
"When asked whether he believed Trump posed a bigger threat to the global economy than Fed Chairman Jerome Powell, Hildebrand replied: 'I would say the policies that are embraced by the U.S. administration around trade represent the biggest risk today to the global economy.'
"He added that the 'overarching difference' for the Federal Reserve's current monetary strategy is the impact of the U.S.-China trade war.
"Can I disagree?"
"Hildebrand's comments on CNBC's "Squawk Box Europe" come as investors continue to monitor the prospect of an escalating global trade war between the U.S. and China. Trump reportedly said over the weekend that he is prepared to impose tariffs on an additional $200 billion worth of imports from China as soon as a public comment period ends Thursday.
"Washington and Beijing have already applied charges to $50 billion of each other's goods in a tit-for-tat trade dispute.
"'Can I disagree?' Daniel Lacalle, chief economist at Tressis Gestion, told CNBC on Tuesday. 'The biggest threat to the economy is not Jerome Powell and it is definitely not Donald Trump. The biggest threat to the economy is extremely loose monetary policies that have created these enormous bubbles.'
"Lacalle argued that major central banks, including the Fed, were guilty of repeatedly misleading emerging market economies with empty promises.
"In response, Hildebrand said: 'No central banker has ever said policy will never change. In fact, the Fed has been extremely transparent about its tightening path. It has been very consistent.'
"'We have a more challenging environment because of tightening, but that is normal,' he added. 'We have overarching risks around trade and you have some very exposed countries. That is really the way we should look at this.' ("Trump's trade war with China is 'the biggest risk to the global economy,' BlackRock exec says," Sam Meredith, CNBC, 09/04/18.)
Why Would You Even think About Buying Gold - Gilburt
The gold market drop could be viewed as an opportunity rather than a negative.
"Gold is a relic of the past. There is no interest from the millennials for gold. The cryptocurrencies are taking demand away from gold. Central banks have been selling gold over the last few years. Interest rates do not support a rally in gold. Gold funds have been closing of late, which evidences the lack of demand for gold.
"We have heard so many reasons as to why no one should buy gold. In fact, the people you speak with about gold either view it with disgust (those who own it) or complete indifference (those who do not).
"But, let me ask you a question: Is the best time to buy an asset when everyone loves it or hates it?
"The bullish sentiment in the gold market is the lowest we have seen in years if not rivaling the same levels as the lows we have seen over decades. And, as Baron Rothschild was quoted as saying: "Buy when there is blood in the street... even if it is yours."
"The fact that the market has dropped as deeply as it has can either be a point of frustration for you or a huge opportunity. Much depends on how you control your emotions and view the market. In fact, if you review the common sentiments I listed at the start of the article, that is what you want to be reading to suggest gold is striking a long-term low. So, I would strongly suggest you view this larger degree pullback as an opportunity to purchase assets in this complex at prices you may not again see in your lifetime." ("Why Would You Even Think About Buying Gold?" Avi Gilburt, Nasdaq, 09/05/18.
Surge In Silver Demand Leaves U.S. Mint With No Eagle Silver Bullion Coins - Lin
Despite the lag in price performance, silver has strong sales and the U.S. Mint is temporarily out of 2018 American Eagle Bullion coins.
"The U.S. Mint has temporarily sold out of its 2018 American Eagle Silver Bullion Coins and is currently in the process of producing more.
"'This is to inform you that due to recent increased demand, the United States Mint has temporarily sold out of its inventories of 2018 American Eagle Silver Bullion Coins,' U.S. Mint said in a press release published on Thursday.
"The announcement comes amidst the strongest silver sales from the U.S. Mint since the start of last year. In August, the U.S. Mint sold 1.53 million one-ounce American Eagle Silver coins, up 72% from the previous month.
"While silver coins have done much better than gold coins, physical silver continues to lag in price performance. The gold-silver ratio has expanded to 84.75, while silver has fallen to two-year lows.
"Peter Hug, director of Global Trading at Kitco, said that the wholesalers responded by raising premiums by as much as 25%.
"'We think that the increase is temporary and may mitigate in about two weeks. We mention it for the investors that have grown weary of the silver market. For those that have thrown in the towel and want to exit their silver positions, the upside is that bid premiums have also gone higher,' he said in a commentary Thursday." ("Surge In Silver Demand Leaves U.S. Mint With No Eagle Silver Bullion Coins," David Lin, Kitco News, 09/06/18.)
It looks like Trump has found the next big target in his trade war-Japan - Martin
Japan may be next country President Trump imposes tariffs on and part of his trade war.
"US President Donald Trump may not be entirely done with his trade war against China, but it looks as though he already has another target in his sights: Japan.
"According to a report from the Wall Street Journal late on Thursday, Trump indicated to reporter James Freeman that he is ready and willing to make Japan 'pay' going forward, suggesting that tariffs on Japanese goods may be on their way.
"Writing in an opinion piece, Freeman says he received a phone call from the president following an appearance on Fox News, during which Trump 'described his good relations with the Japanese leadership but then added: 'Of course that will end as soon as I tell them how much they have to pay.'
"During his trade salvos, Trump has imposed tariffs on China, the EU, Canada and Mexico. But so far he has only threatened to involve Japan, without actually engaging it.
"Japan, the world's third-largest economy after the US and China, is a major trading partner for the US, with automobile imports particularly important.
"Major Japanese brands like Toyota and Honda send more than 8 million cars to the US each year, and manufacture close to 4 million within the US. Last year, more than $40 billion of Japanese autos entered the country.
"Trump has previously lamented that imported vehicles are a threat to national security, with Japanese Prime Minister Shinzo Abe one of the strongest dissenting voices against such claims.
"'Imports of our nation's automobiles and auto parts have never damaged U.S. national security and will not do so in the future,' Abe said at a news conference in July.
"'Trade restrictions will not benefit anyone, and we will keep explaining that to the U.S. and work closely with them to ensure those tariffs are not imposed,' he added.
"Reports of Trump's willingness to engage Japan in his trade war come just hours before the US is expected to make public its decision on whether to levy fresh tariffs on a cumulative $200 billion worth of Chinese goods imported to the USA.
"The new tariffs, affecting roughly 40% of all Chinese exports to the US, would mark the biggest escalation of the trade conflict so far and would be almost guaranteed to lead to retaliatory tariffs from the Chinese government." ("It looks like Trump has found the next big target in his trade war- Japan," Will Martin, Business Insider, 09/07/18.)