Gold Monitor
Murenbeeld & Co
March 3, 2017
Martin Murenbeeld
[email protected]
Brian Bosse
[email protected]
Chantelle Schieven
[email protected]
GOLD PRICE
US$ - Friday p.m. fix
Source: LBMA, Bloomberg
US DOLLAR INDEX
Euro, Yen, Pound, Cdn $,
Yuan, Swiss, Rupee, Aus$
Euro, Yen,
Pound
Euro, Yen,
Pound, Cdn $ January 1999 = 100
Source: WSJ, Bloomberg
US INTEREST RATES
10-year US Treasury
3-Month T-bill
Source: Bloomberg
Gold - 2nd Fix
Gold - COMEX
Silver - HH
Platinum - NYME
Crude Oil - NYME
CRB Bridge - NYBOT
US $ (Excluding Cdn.)
Fed Funds (Overnight)
US Bonds - CBOT
TSX Global Gold Index
S&P 500
Feb-27
1257.20
1258.80
1847.50
1038.90
54.05
189.88
107.74
0.66
152.625
205.24
2369.75
Feb-28
1255.60
1253.90
1844.50
1031.00
54.01
190.62
107.89
0.57
152.94
207.72
2363.64
Mar-01
1240.40
1250.00
1843.00
1018.90
53.83
191.27
108.52
0.66
150.69
210.61
2395.96
Mar-02
1238.10
1232.90
1803.00
989.90
52.61
188.81
108.98
0.66
150.34
201.15
2381.92
Mar-03
1226.50
1226.00
1803.00
987.60
53.14
189.22
108.87
0.66
150.31
202.13
2377.57
Source: LBMA, CME, WSJ, Bloomberg, Murenbeeld & Co
The gold price declined this
week as the odds of a Fed
rate hike at the Fed’s March
14-15 meeting increased. Fed
presidents, including William
Dudley from New York and John
Williams from San Francisco,
have said that a rate increase in
March is on the table.
In a speech on March 3
Chair Yellen reiterated the
FOMCs commitment to its
long-run mandate of maximum
employment and stable prices.
She said that since mid-2016 “...
job gains have remained quite
solid, and the unemployment
rate, at 4.8 percent in January,
is now in line with the median of
FOMC participants’ estimates
of its longer-run normal level.
On the whole, the prospects
for further moderate economic
growth look encouraging,
particularly as risks emanating
from abroad appear to have
receded somewhat. The
Committee currently assesses
that the risks to the outlook are
roughly balanced.”
On the inflation front she said
“... moreover, after remaining
disappointingly low through mid2016, inflation moved up during
the second half of 2016, mainly
because of the diminishing
effects of the earlier declines in
energy prices and import prices.
More recently, higher energy
prices appear to have temporarily
boosted inflation, with the total
PCE price index rising nearly 2
percent in the 12 months ending
in January. Core PCE inflation-which excludes volatile energy
and food prices and, therefore,
120
110
Last date: November 25, 2016
100 Monitor
Gold
06
07
08
NEWEFXR
09
10
11
12
13
14
15
16
03/03/2017
17
US DOLLAR INDEX – EFXR0C
DXY
US DOLLAR INDEX - DXY
US DOLLAR INDEX
- NEWEFXR
Euro
Yen
Euro Pound
Yen
Pound
Rupee
Euro
Yen
Pound
Cdn$
S. Krona
Swiss F
Weekly, Last date: March 3, 2017
January 1999 = 100
January 1999 = 100
Currencies 2
Cdn$
Yuan
Swiss F
Aus$
Weekly, Last date: March 3, 2017
Weekly, Last date: March 3, 2017
US DOLLAR INDEX – EFXR0
US DOLLAR INDEX – EFXR0C
Euro
Yen
Pound
Cdn$
Euro
Yen
Pound
January 1999 = 100
Weekly, Last date: March 3, 2017
January 1999 = 100
Weekly, Last date: March 3, 2017
Source: Bloomberg, Murenbeeld & Co
Currencies 3
The US dollar rose this week on increased anticipation of a
Fed rate hike at the March 14-15 Currencies
meeting.
13
US DOLLAR INDEX – EFXR0
tends to be a better indicator
of future inflation--has been
running near 1-3/4 percent.
Market-based measures of
inflation compensation have
moved up, on net, in recent
months, although they remain
low.”
Given these employment
and inflation developments
Murenbeeld & Co
she concluded “... with the
job market strengthening and
inflation rising toward our
target, the median assessment
of FOMC participants as of
last December was that a
cumulative 3/4 percentage
point
January 1999 = 100
increase in the target range for
the federal funds rate would
likely be appropriate
over
Currencies
3 the
course of this year.”
2
Euro
Yen
A better
than expected
Pound
Cdn$
employment report next
Friday, March 10 could cement
expectations of a rate increase
the following week.
A hike on March 15 could
possibly push Weekly,
the Last
gold
price
date: March
3, 2017
lower in the near term, but we
we think any decline will be
short lived.
www.murenbeeld.com
Gold Monitor
03/03/2017
THE SHORT-SHORT TERM TECHNICAL PICTURE
$1385
$1366
$1340
200-day moving
average
$1296
$1277
$1212
$1192
$1142
$1126
50-day moving
average
$1081
$1049
Daily p.m. fix
Last date: March 3, 2017
2014
2015
Source: LBMA, Bloomberg, Murenbeeld & Co
Tops
The gold price declined
this week ... and $1212
is the first support level
because of a previous
Bottoms
bottom and a rising 50day moving average.
2017
2016
CHANGE IN GOLD ETFs
5-day sum of daily change
tonnes
THE SHORT-SHORT TERM TECHNICAL PICTURE
... ETF purchases
continued through
Thursday ...
$1385
$1340
$1296
200-day moving
average
50-day moving
average
2014 : -164 T
2015 : -137 T
2017 : 61 T $1225
$1203
To Date
$1184
2016 : 315 T
2013: -869 T
Last date: March 2, 2017
2013fix
Daily p.m.
2014
2015
Source:
Bloomberg
Last date:
November 25,Murenbeeld
2016
Source:
Bloomberg,
& Co
2014
Source: LBMA,COMMITMENTS
Dundee Economics
2016
$1049
... and COT net-long
“specs” increased
through Tuesday.
2016
2015
OF TRADERS DATA
“Specs” net long
(tonnes)
Gold Price 6
$1082
Gold price
(%Q/Q)
GOLD AND SILVER ETFs
tonnes
tonnes
ETF-Silver
Total
We expect both
declined later in the
week, however.
Last date: February 28, 2017
ETF-Gold
Total
Source: US Commodity Futures Trading Commission, Bloomberg, Murenbeeld & Co
Last date: November 23, 2016
*Futures Contracts: in tonnes-equivalent
Source: ExchangeTradedGold.com, Bloomberg
Gold Price 10
Murenbeeld & Co
3
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Gold Monitor
03/03/2017
The US $800 Billion Goods Deficit
US Trade Balance With World
by Martin Murenbeeld
To be sure, President Trump said the following
in his Tuesday evening address to Congress:
“Our trade deficit in goods with the world last year
was nearly $800 billion dollars” (bolding added).
We mention the US trade balance again along
with the record deficits the US has posted in
recent years (in nominal dollars) because these
deficits are central to Trump’s view of the state of
the American union, and central to his view that
the US has gotten a raw deal from the rest of the
world when it comes to international trade.
billion$
US Trade Balance With China
12 mo. moving total, bn$
Last date: December 2016
Source: US Census Bureau, Bloomberg
US Trade Balance With China
US Trade Balance With Japan
“I believe strongly in free trade but it also
has to be fair trade. It’s been a long time since
we had fair trade”, Trump said. He then went
on to note Harley Davidson’s experience facing
exceptionally high tariffs overseas (not even
mentioning the non-tariff barriers the company
likely deals with).
Last date: December 2016
12 mo. moving total, bn$
US
Trade
Balance
Source: US Census Bureau,
Bloomberg
Last
date: December 2016
With
World
12 mo. moving total, bn$
billion$
billion$
We have our own list of unfair trade examples
gathered over the years, some dealing with
Canadian companies attempting to export/
invest their particular brands in overseas/Asian
markets. More often than not “trade” is a dirty,
tit-for-tat business, where the advantage goes to
the negotiator with the biggest stick. Canadian
negotiators do not often carry a big stick and/
or are reluctant to swing it. Ditto, US negotiators
before President Trump. We’ll see how it goes
from here!
Source: US Census
Bureau, Bloomberg
US Trade
Balance
With European
Union
Last date: December 2016
billion$
12 mo. moving total, bn$
Source: US Census Bureau, Bloomberg
US Trade Balance With European Union
billion$
Last date: December 2016
12 mo. moving total, bn$
Source: US Census Bureau, Bloomberg
billion$
Last date: December 2016
12 mo. moving total, bn$
Source: US Census Bureau, Bloomberg
Of key interest to us is how US trade issues
will affect the US dollar and the rapid drift to
protectionism around the world. One can imagine
that were the US to alter the conditions under
which imports enter the US, imposing a border
tax for example, other countries might well decide
that their current protectionist practices will not
only not be repealed – but stepped up instead.
This will put the world on the road to a trade war,
and trade wars have historically gone hand in
billion$
US Last
Trade
Balance
With Japan
date: December
2016
12 mo. moving total, bn$
Source: US Census Bureau, Bloomberg
billion$
Last date: December 2016
12 mo. moving total, bn$
Source: US Census Bureau, Bloomberg
Murenbeeld & Co
4
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Gold Monitor
03/03/2017
hand with slower growth, if not outright recession.
(The Smoot-Hawley tariffs added greatly to the
pain of the Great Depression.)
things, an international currency realignment and
market-opening policies abroad; and I hope that
overseas surplus countries will cooperate in this
effort.
Recessions hurt gold, but currency
devaluation, expansionary monetary and
expansionary fiscal policies necessary to deal
with declining GDP typically propel gold higher.
But trade is a nasty business – below is a
schematic of non-tariff barriers to trade. All of
these NTB’s to trade have been used at one time
or another by most countries to limit imports.
Safety and health regulations are common for
example, as are “buy national” policies – the
latter is exactly what the Trump Administration
appears to want to enforce for the US.
I am guessing the Trump Administration will
push to the limits of a trade war but no further.
Certainly the Administration will swing its big
stick of access to US consumer markets. I would
hope that the US is able to force, among other
Source: https://www.scribd.com/doc/14749241/Examples-of-Non-Tariff-Barriers
Murenbeeld & Co
5
www.murenbeeld.com
billion$
Gold Monitor
Last date: December 2016
12 mo. moving total, bn$
03/03/2017
Source: US Census Bureau, Bloomberg
US Trade Balance With Mexico
US Trade Balance With Canada
billion$
Last date: December 2016
billion$
12 mo. moving total, bn$
Last date: December 2016
12 mo. moving total, bn$
Source: US Census Bureau, Bloomberg
Source: US Census Bureau, Bloomberg
US Trade Balance With Mexico
Buffett, Value, and Gold
by Brian Bosse
Warren Buffett, Chairman of Berkshire
Hathaway, released his annual letter to
shareholders six days ago. As readers know,
Berkshire Hathaway has grown into, arguably, the
greatest conglomerate of all time, and Mr. Buffett
isbillion$
widely Last
accepted
professional
date: December to
2016be the greatest
12 mo. moving
total, bn$
investor (alive or dead).
Mr. Buffett’s key issue with gold is that it
doesn’t compound; 1000 ounces of gold will not
turn into 1050 ounces by year-end. Nor will the
1000 ounces return any dividends. 1000 ounces
of gold will never become Apple, which reinvented itself from a nearly bankrupt computer
company into a global standard for innovation.
Mr. Buffett as a value investor learned at
the knee of Benjamin Graham, the dean of
value investing. But Buffett has not had sterling
success when it comes to precious metals. His
foray into the silver market in 1997 elicited the
following Buffett response: “I bought it very early,
I sold it very early. Other than that it was perfect!”
Physical gold is owned by investors who
desire some element of “wealth conservation”,
as opposed to “wealth creation”. Individuals,
families, and even nations who are already rich
understand that getting rich was hard, but staying
rich is also hard. These investors (and nations)
are quite willing to own “hard assets” that have
little annual compounding, yet are unlikely to be
made obsolete when the world changes. (We
don’t know if Apple and Coke will be around 50
years from now, but gold will be!) The longevity of
gold eliminates long-term business risks.
Source: US Census Bureau, Bloomberg
In an earlier annual letter he noted that
“gold gets dug out of the ground in Africa, or
someplace, then we melt it down, dig another
hole, bury it again and pay people to stand
around guarding it. It has no utility. Anyone
watching from Mars would be scratching his
head”.
Much of the asset management industry is
built around a similar concept: getting rich is
hard, but if properly managed, you need only get
rich once. Indeed, many banks, brokers and trust
companies specialize in helping people stay rich.
Interestingly, Mr. Buffett’s father, four-time
Republican US Congressman Howard Buffett,
spoke in favour of returning to a gold-backed US
monetary policy standard. But not Warren!
Murenbeeld & Co
We at Murenbeeld & Co. consider ourselves
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Gold Monitor
03/03/2017
value investors. And we look upon gold as an
investment to important to ignore.
there are periods when gold “compounded” more
rapidly than the S&P 500 index, and periods
when gold “compounded” less rapidly. But over
nearly 50 years, gold has “out-compounded” the
equity index. Gold has risen from $35 to $1250,
for a gain of 350% or so whereas the S&P 500
index has risen about 260%.
A physical, unlevered, inert item such as
gold has still compound money for investors!
This can be seen in the following chart where
both the S&P 500 index and the gold price are
set equal to 100 on March 1, 1968 (about the
time gold became “unfixed” by central banks).
No adjustments are made for the storage costs
of gold, nor are adjustments made for taxation
of any kind. One can see clearly that gold has
“compounded” over the last 49 years. To be sure,
Within the S&P 500 there are stocks that
have done much better than 260%, and Warren
Buffett has the right mind to ferret these out.
Unfortunately, not all of us are Warren Buffetts,
and for us gold has a definite role to play.
GOLD PRICE AND S&P 500 INDEX
March 1968 = 100
Log Scale
5000
3000
2000
Spot Gold Price
1000
700
500
300
200
S&P 500 Index
100
50
Monthly: February 2017
Source: Bloomberg, Murenbeeld & Co
Murenbeeld & Co
www.dundeeeconomics.com
1
Source: Bloomberg
7
www.murenbeeld.com