Gold To Digest FBI Clinton Email Investigation; Ignore FOMC Meeting
By Neils Christensen of Kitco News
Friday October 28, 2016 14:25
(Kitco News) – With the Federal Open Market Committee meeting expected to be a non-event, markets could focus last week before the U.S. election, which could be bullish for gold, according to some analyst.
U.S. election uncertainty could be bullish for gold next weekFriday afternoon, the Federal Bureau of Investigation announced that it would reopen its investigation into Democratic presidential candidate Hillary Clinton emails.
Jim Wyckoff, senior technical analyst at Kitco Metals, said this revelation could be a potential game changer for the U.S. election, creating volatility for markets, which is positive for gold. According to reports, the Volatility Index jumped 10% following the FBI’s announcement.
The latest U.S. election uncertainty is also helping to weigh down the U.S. dollar. The U.S. dollar Index is ending the week in negative territory for the first time in four weeks with the selling pressure coming late Friday. Earlier in the week the USD Index hit an eight-month high.
The late-day U.S. dollar weakness propelled gold to its second consecutive weekly gain, with prices settling Friday at $1,276.80 an ounce, up 0.78% since Monday’s open.
The silver market is also seeing strong gains, settling Friday at 17.796 an ounce, up more than 1% since Monday.
Federal Open Market Committee Meeting A Non-Event Next Week
The FBI’s new Clinton email investigation is expected to overshadow the Fed’s monetary policy decision Wednesday. Even before the FBI’s annoucement many analysts were discounting the central bank meeting.
Most analysts agree that neither gold nor the U.S. dollar will see much benefit from Wednesday’s U.S. monetary policy decision. The Federal Reserve is expected to keep a low profile and not make waves in financial markets ahead of the U.S. election, to be held the following week.
“The market completely believes the Fed is going to raise interest rates in December so there is nothing they can say to strengthen those expectations,” said Greg Harmon, founder of Dragonfly Capital.
CME 30-Day Fed fund futures are pricing in a 9% chance that the Fed will move in November. However, markets are pricing in more than a 70% chance of at least a 25-basis-point hike in December.
Don’t Forget About Nonfarm Payrolls
Along with the Federal Reserve, the second main economic event next week will be the October nonfarm payrolls report. However, some analysts are also expecting that this will be a non-event for gold, as it is not expecting to derail interest-rate expectations.
“Right now, the key for the Fed is to avoid disaster. At this point, the economic data doesn’t even have to be great. It just can’t be a complete catastrophe,” said Nick Exarhos, senior economist at CIBC World Markets.
Gold and the U.S. Dollar
Jeffrey Nichols, senior economic advisor at Rosland Capital and managing director at American Precious Metals Advisors, said that the gold market has able to shake off U.S. dollar strength because it is being buoyed by growing physical demand, particularly in China and India. With Diwali, India’s culturally significant festival of lights, to start Sunday, he is expecting physical gold demand to remain strong next week.
Of course, not everyone is completely discounting the U.S. dollar. Exarhos said that in the past the U.S. dollar has seen its best gains between November and December as expectations continue to firm as markets prepare for a year-end interest-rate hike.
But he added that given the U.S. dollar’s performance lately, the currency probably only has a little room to move higher, which is one of the reasons why its strength is having a limited impact on gold.
“We think the U.S. dollar still has a little bit room to push higher ahead of December,” he said. “That could impact gold. Gold has probably seen its lows but its upside potential is limited in the face of a stronger U.S. dollar and rising bond yields.”
Key levels to watch
Gold prices this week have struggled to hold gains above its 200-day moving average – at $1.274.30 an ounce — which Harmon said is not a sign of confidence in the near term.
He added that right now the market is moving up in “deeply bearish territory” and still looks weak in the near term.
“Until gold pushes above $1,310, the market looks bearish to me,” he said.
Fawad Razaqzada, technical analyst at City Index, said in a recent email to
Kitco News that he is also watching resistance between $1,300 and $1,310 and that gold prices could see new lows as long as this level is not breached. However, Joshua Mahoney, market analyst at IG, said that as long as gold hold support at $1,260, the uptrend remains intact.
The Final Say
Besides the Federal Reserve and Friday’s employment report, investors will have a full slate of economic events monitor, including the Bank of Japan’s and the Bank of England’s monetary policy decisions
The Bank of Japan’s negative interest rate monetary policy has helped the global gold market, as its opportunity costs drop in a low-yield environment.
U.S. data will include manufacturing reports and ADP private-sector employment data, ahead of Friday’s nonfarm payrolls number.
As we head into one of the most controversial elections in US history, the miners appear to be leading the gold sector lower. The low struck from this move could very well be the final low for this correction of the huge first leg higher of this new miner bull market. I believe the sector formed a major six month bottom from July 2015 to January of this year after capitulation selling began toward the end of 2014.
I am still leaning toward the GDX 20-21 level to be tested and held very soon. This area could quite possibly be hit by next Friday’s Non-Farms Payroll report (NFP) as we head into super Tuesday, November 8th. The oversold bounce, which began two weeks ago from the GDX 22.50 level, has been unable to trade into the October 4th “stop run” gap before heading lower this week. Gold was also stopped cold at the $1275 area before heading back down with miners now leading the sector lower. This is a bearish sign, which now sets up a possible final sell off into the GDX very strong support area of 20-21.
In Thursday’s gold sector market action, we had the miners sell off hard with gold and silver slightly higher on First Notice of Delivery day in the futures market. The miners usually lead the metals, so this could very well portend the beginning of a final sell off in the sector. I mentioned this possibility in a previous post, which I have been waiting for in order to be comfortable with concluding the miners having reached a probable bottom before beginning the next leg higher of this new bull market.
A very useful statistic in gauging where we are in terms of reaching a bottom in the sector is the gold market sentiment indicator. We are getting very near the levels of previous bottoms in gold as they are currently at only 21% bulls. One more sell off should clean out the last of the late comers to the sector and set up a very low risk entry point for those waiting on the sidelines here.
Keep an eye on the $1250 gold level into the election as I believe this area must be held on a weekly closing basis in order to negate the 22 level being breached on the GDX. I am also still waiting for the GDX 26 level to be reached on a weekly closing basis in order to be convinced of a miner bottom and the beginning of the next leg higher of this new miner bull market. Whether the sector hits the aforementioned 20-21 level before resuming this new bull market most likely depends on strong weekly support of gold $1250 holding. The weak miner action here is telling me $1250 gold is in danger of being breached, which would probably trigger a final sell off in the miners as we head into the election on November 8th.
- * GfK consumer sentiment falls to -3 in Oct vs -1 in Sept
- * Asda income tracker shows weakest growth in almost 2 years
- * YouGov/Cebr consumer sentiment gauge lowest since July
LONDON, Oct 28 (Reuters) – British consumers turned less optimistic this month as sterling’s slump began to eat into their disposable income, according to two surveys on Friday which will raise concerns about the strength of future spending growth.
Britain’s economy has performed better than most forecasts since June’s referendum decision to leave the European Union, in large part thanks to strong consumer spending.
But finance minister Philip Hammond warned on Thursday that did not mean the economy would dodge a slowdown next year.
Market research firm GfK said sentiment fell for the first time since the immediate shock of the Brexit vote. Its consumer confidence index dropped to -3 in October from -1 in September.
“Despite the continuing feel-good factor arising from persistent low interest and inflation rates, sterling’s sharp decline is arguably stoking fears that price rises will hit UK living standards hard next year,” GfK analyst Joe Staton said.
A similar survey by polling firm YouGov showed the weakest confidence since July and the view of households of their finances showed the biggest deterioration since December 2014.
“The flash crash in the pound and fears of a ‘hard’ Brexit have taken their toll … and 2017 looks set to be a challenging year for UK households,” said Scott Corfe, a director of economics consultancy Cebr, which provides analysis for YouGov.
Sterling has lost almost 20 percent of its value against the U.S. dollar since the referendum. British inflation rose to 1 percent in the year to September and could hit 3 percent by the end of next year, many economists say.
Separate figures from supermarket chain Asda showed that households’ disposable income – after tax, housing, food and other bills – rose by the smallest amount in almost two years.
Prices for essentials rose by the largest amount since November 2014, and the cost of imports was likely to increase further due to the weak pound, Asda said.
But a robust job market and relatively low inflation should help spending in the immediate future and GfK noted households were more willing to make major purchases than a year ago.
The GfK survey of 2,001 people was conducted between Oct. 1 and Oct. 15, on behalf of the European Commission. YouGov’s polling was done in the first three weeks of October.
(Kitco News) – Physical gold demand in one of the top consuming nations picked up in September and one research firm is expecting the trend to continue.
September’s Rise In Chinese Gold Imports Is Just The StartAccording to the latest trade data, net gold imports into China from Hong Kong increased by 44.9 tonnes in September, up from August’s level of 41.9 tonnes, which was its lowest point in seven months. Gold imports are down by more than 53% compared to September 2015.
However, taking out the monthly volatility, Simona Gambarini, commodities economist at Capital Economics, said that gold imports into China so far this year are up 9% compared to the same time frame last year, “suggesting that China’s appetite for gold has remained robust.”
Gambarini, added that she is expecting the trend to continue, particularly after the 5% drop at the start of the month.
“Chinese consumers tend to be very sensitive to changes in price and the recent fall in the gold price below the
$1,300 per ounce level has probably stimulated buying activity. We expect China’s demand to strengthen in the remainder of the year as gold buying normally accelerates ahead of the Chinese New Year,” she said in a recent report.
While China’s gold demand is expected to rise, there is some doubt as to whether Indian demand, the second biggest physical market, will have the same impact.
“With the wedding and festival season having just started and the monsoon having been a lot stronger this year, we expect demand to pick up in the coming months,” she said. “However, imports will probably be comparatively lower than in previous years as jewellers have accumulated substantial inventories.”
Silver Investment Has More Potential Than Gold In 2017
Neils Christensen – While expecting gold prices to rally to $1,400 an ounce in 2017 on continued investor demand, ETF Securities looks for silver to outperform as industrial demand drives prices.
In a recently published report, analysts at ETF Securities said that they see silver prices trading in a range of between $22 and $24 an ounce in 2017. With silver prices last trading Wednesday at $17.70 an ounce, that would mean at least a 24% gain for the precious metal.
ETF Securities’ gold-price target of between $1,400 an ounce and $1,450 would represent a gain of 10% from the precious metal’s current price of $1,272.60 an ounce.
“We are constructive on gold next year but we see more potential upside for silver given its high correlation to the industrial-production cycle, which be driven by the continued recovery in the global economy,” said Maxwell Gold, director of investment strategy at the firm, in an phone interview with Kitco News.
The investment firm noted that there is an 80% correlation between gold and silver and while silver has benefited from gold’s unprecedented investor demand, silver’s fundamental supply-and-demand picture is what will drive the price higher next year.
Gold noted that his firm is expecting to see strong silver demand in electronic components, especially as companies use the metal as a substitute for more expensive options like gold — also known as thrifting.
He added that the solar sector, especially in China — now the global leader — will to continue grow. At the same time, ETF Securities expects to see a drop in supply as mining production falls as a result of lower capital expenditures.
“We do see the importance of silver’s investor demand, but overall silver is much more dependent on supply-and-demand factors,” he said. “We see constructive fundamentals for silver going forward both by continued expansion of global industrial activity and reduced mine activity.”
ETF Securities’ gold and silver price forecasts would push the gold/silver ratio back to historic norms at 64. The ratio was trading Tuesday around 72, its highest level since early June.
Both gold and silver have been two of the top assets so far this year. Investor demand as a result of global negative bond yields have pushed gold prices up 19%. Silver, because of its higher volatility, is up 28% since the start of the year.
How Much You Could Make From Silver Investment
Ben Traynor – Simon Popple explained why a specific subset of silver miners could soon find themselves in a very enviable position immediately after the US election. Practically overnight these guys could become the companies every silver investor wants to own. There’s potential for a huge, rapid move here.
But that’s not what grabbed me.
What grabbed me is that this sector has solid fundamentals whatever happens in America two weeks from now.
To show you what I mean I’ve knocked up a quick chart below. It shows previous silver bull markets and the kind of percentage gains investors could have made.
It also shows how far silver has moved during the current bull market – if indeed this is (as I’m inclined to believe) the start of such a thing.
Picking the exact dates to call the “start” and “end” of earlier bull markets is a slightly arbitrary exercise. But the broad message remains the same.
A silver bull market is a multi-year thing. And historically they have delivered very strong returns.
For our purposes here I’ve picked out the following silver bull markets and the potential gains for an investor who held silver bullion:
November 1971-February 1974 (415% potential gain)
June 1977-January 1980 (1,041% potential gain)*
March 2003-March 2008 (378% potential gain)
October 2008-April 2011 (421% potential gain)
I’ve put an asterisk next to the bull market that ended in 1980, because that run-up in silver prices owed a lot to the Hunt brother’s failed attempt to corner the silver market.
Still, it shows the potential for silver to move very quickly when a lot of money enters this small, overlooked-by-the-mainstream market.
My point – as this chart illustrates – is that there could be plenty of upside left for precious metals investors who build positions now:
Silver’s 2016 gains so far are way below what earlier bull markets delivered
How Much You Could Make From Silver Investment
That thick black line in the bottom left corner is what silver’s done since January. Not a lot, basically.
Against a global backdrop of historically high indebtedness and increasingly aggressive monetary policy, it’s a brave investor who rules out the prospect of a new bull market in precious metals.
And history shows us that when a bull market in silver takes hold, it can send bullion prices much, much higher.
That’s before you consider the fact that silver miners can deliver returns that are multiples of the return offered by the metal itself…
And before you consider what Simon’s uncovered about how the US election could have a direct and immediate impact on the silver market.
I felt the best way to share his idea with you was to get Simon on camera, kick it about a bit and lay out exactly why we could see an immediate move in a specific corner of the silver market two weeks from now.
So that’s exactly what we’re putting together.
Next Wednesday, 2nd of November, Simon and I will broadcast an urgent analysis at 7pm.
(Kitco News) – Gold prices are expected to struggle to the end of the year as the market prepares for the Federal Reserve to raise interest rates in December, but one mining analyst continues to see potential in the mining sector.
Brent Cook Of Market Insight says now is the time for investors to get positioned again in the gold mining sector
Brent Cook, editor of Exploration Insights
In a recent interview with Kitco News, Brent Cook, editor of the popular mining newsletter, Exploration Insights, said that the correction in gold at the start of the month, which saw prices fall more than 5% has created a new buying opportunity for investors throughout all segments of the industry.
The large cap mining the mining sector, represented by The Market Vectors Gold Miners Exchange-Traded Fund (NYSEARC: GDX) fell almost 14% at the start of the month but appears to be stabilizing with prices last trading at $24.70 a share, up 2.5% on the day.
Market Vectors Junior Gold Miners ETF (NYSEARC: GDXJ) fell more than 15% during the correction; the EFT is also off its support, last trading at 41.79 a share, up 2.8% on the day.
“Intelligent investors have been waiting for this correction and now it is time to acquire, selectively, quality projects that make money at this price,” he said. “Across the board, the next couple of months is the time to get positioned again.”
However, Cook’s preferred sector for long-term investors has managed to hold on to most of its gains. He said that he still sees junior explorers as the best opportunity in the mining industry, represented by the TSX Venture Index. The TSX Venture Composite, which is heavily weighted with junior miners and explorers is only down 6% from its highs seen mid-August.
Cook said that he continues to look for investment opportunities among junior explorers because this sector is ripe for take overs from major producers that have significantly slashed their exploration budgets to cut costs and improve their balance sheets.
“Fundamentally, looking longer-term, the gold mining industry is producing more gold than it is replacing,” he said. “Last year the sector produced about 90 million ounces but only discovered 40 million new ounces and that has been going on for a number of years.”
Cook added that for investors to be successful in the mining sector, they have to be aware of projects’ “fatal flaws,” — an idea that he has been developing throughout the year.
“A majority of projects end up a bust,” he said. “Our job at Exploration Insights is to identify those fatal flaws as early as possible to get out of the stock as early as possible.”
A couple of simple factors investors should look at when evaluating projects are things like the continuity of makeup of the mineralization
“If the mineralization doesn’t connect or it takes a lot of energy to break the gold lose, those could be a huge costs that might not make the project viable,” he said.