Precious Metals

The last note briefly addressed the benefits associated with the reverse repurchase facility (RRF). Indeed liabilities have increasingly moved from bank balance sheets to the Fed, freeing lending capacity. One must recall reserves are not fungible outside of the banking system (but can act as collateral for margin). With flow decreasing, the opportunity for small relative volume bids spread over a large quantity of transactions (most instances per unit time) decreased with market prices in many asset markets. Is more downside coming?

This week has seen some market volatility (see VIX Chart) reminiscent of the functioning market from days of old. The markets are spooked, bad news is overtaking good news and bearish views are becoming vogue. We are seeing a titanic battle taking place between the various bull and bear camps and they are starting to unleash some serious firepower. 

Copious amounts of monetary whiskey have been downed in the global economy and yet the recovery remains weak at best. The mother of all monetary hangovers awaits us all and will likely manifest in stagflation and sharply higher inflation.

Global economic growth remains weak and vulnerable and the global financial system remains very fragile. The ebola virus has the potential to be the straw that breaks the proverbial camel’s back. 

Stocks and commodities fell globally today due to concerns about the spread of Ebola and declining economic growth. Precious metals bounced from near multi month lows.

Gold is valuable and extremely rare, and therefore the yellow metal is usually protected at all costs. However, there have been multiple occurrences in history where evildoers have breached security measures and bullion has fallen into the wrong hands.

We have seen this before...

In recent months, this prognostication has been gaining traction that a second, more severe crash - one that reflected the level of debt - is inevitable. There are two primary camps amongst economists with regard to the economic direction that a crash will generate: inflationists and deflationists. The argument goes back and forth, yet there seems to be the misconception that one must be either an inflationist or deflationist. This is not at all the case.

The move lower in September was technically driven as there was no negative headline data, obvious reasons for price falls or indeed evidence of physical gold selling. Most of the selling was on the COMEX and gold remained firm in Asian trading throughout the month. Bullion buyers should buy the dip 

While the biggest micro news of the weekend is certainly the report that Hewlett-Packard has finally thrown in the towel on organic growth (all those thousands laid off over the past ten years can finally breathe easily - they were not fired in vain), and has proceeded to do what so many said was its only real option: splitting into two separate companies, a personal-computer and printer business, and corporate hardware and services operations (which will certainly lead to even more stock buybacks only not at one but two companies) which in turn has sent its stock and futures higher, perhaps the most notable development in the macro world is Japan's realization finally that the weaker Yen is crushing domestic businesses, which has resulted in the USDJPY sliding to lows last seen at Friday's jobs report print, and also generally leading to across the board wekness for the dollar, whose relentless surge in the past 3 months is strongly reminiscent of the euphoria following the Plaza Accord, only in the other direction (and making some wonder if the Plaza Hotel caterer are about to see a rerun of September 22, 1985 in the coming weeks).

In is only fitting that a week that has been characterized by deteriorating macroeconomic data, and abysmal European data, would conclude with yet another macro disappointment in the form of Markit's sentiment surveys, for non-manufacturing/service (and composite) PMIs in Europe which missed almost entirely across the board, with Spain down from 58.1 to 55.8 (exp. 57.0), Italy down from 49.8 to 48.8 (exp. 49.8), France down from 49.4 to 48.4 (exp. 49.4), and in fact only Russia (!) and Germany rising, with the latter growing from 55.4 to 55.7, above the 55.4 expected, which however hardly compensates for the contractionary manufacturing PMI reported earlier this week. As a result, the Composite Eurozone PMI down from 52.3 to 52.0, missing expectations, as only Germany saw a service PMI increase. And yet, despite or rather thanks to this ongoing economic weakness, futures have ignored all the negative and at last check were higher by 9 points, or just over 0.4%, as the algos appear to have reconsidered Draghi's quite explicit words, and seem to be convinced that his lack of willingness to commit is merely "pent up" commitment for a future ECB meeting. That or, more likely just another short squeeze especially with the "all important" non-farm payrolls number due out in just over 2 hours, which for the past 24 hours has been hyped up as sure to bounce strongly from the very disappointing, sub-200K August print.

Central planners should be careful what they wish for...

Reports of individuals snapping up near-record numbers of gold and silver coins are coming in from around the world. While individual buyers aren't the dominant players in precious metals, they do make a difference; and their renewed enthusiasm is matched by some recent national trends. There's no guarantee that this buying, encouraging as it seems, is anything more than a blip; but in the aggregate it does seem like a lot of buyers, old and new, are finding current prices to be attractive. That's how bottoms form and new bull markets begin.

The dumb, speculative money is selling as smart money continues to accumulate physical ... Gokhran, the Russian precious metals and gems repository, said it has been buying gold bullion in 2014 and will likely to start buying palladium bullion in 2015, Interfax news agency reported this morning, citing the head of Gokhran, Andrey Yurin.

Brinkmanship, a failure of diplomacy and increasing militarism appears to have the world on the verge of a serious military conflict. Everybody should own some physical gold as a hedge and a safe haven asset to protect against the significant risks challenging us today which include bail-ins, currency wars, terrorism and war.

The ongoing gold accumulation strategy by Russia, Kazakhstan and other ex Soviet states is a reserve diversification strategy. It may also be an attempt to undermine western markets and the vulnerable COMEX gold market in the U.S. It is likely a coordinated monetary policy, since Russia and Kazakhstan are members of the Eurasian Customs Union along with Belarus.