Gold Jumps Higher On Powell’s About Face….

January 28, 2019 

* Currencies rally on Friday… 

* Will Draghi throw the euro under a bus today? 

Good Day… And a Marvelous Monday to you! It was a washed out weekend for yours truly, as S. Florida received as much rain in 2 days as they normally receive in 1 month… And… It’s supposed to be the “dry season”! But, I don’t let that get me down, for I know the sun will be out sooner or later! Both the college basketball teams I follow lost this past weekend too. How does a team hold a 14 pt advantage with 1:40 left in a game and lose the game? Well, I saw how it was done, and I didn’t like it at all! Mizzou Senior QB, Drew Lock, performed well in the Senior Bowl… If that has any consolation in it… UGH! Neil Young and Crazy Horse, greet me this morning with their live from The Fillmore East recording of: Down By The River… This version is over 12 minutes long, so it’ll still be playing as I write…

Well, how about that performance of Gold on Friday? Gold gained $22, and forged over the $1,300 road block that has been in place for some time now… But Gold’s gains were outpaced by Palladium which rose more than $41` on the day… We’re seeing some profit taking early this morning in both, but for now, Gold is holding above $1,300…

So, why the big move on Friday, I hear you asking? Well… as the Fixx once sang, one thing leads to another… But that’s too simplified… When actually the thing that got Gold moving in the right direction, was another chink in the Fed’s credibility armor… You see, Fed Chairman Powell, is now talking or hinting if you will, about slowing down the Fed’s Great Balance Sheet Unwind… Powell has already made overtures about pausing the Fed’s rate hike cycle, and now if he’s talking about pausing the Unwinding of the Balance Sheet, or Quantitating Tightening, if you will… Then that would mean that interest rates aren’t going to go any higher, and all the previous talk about getting back to “normal rates” and so on, is being thrown out with the bathwater…

So, why wouldn’t Gold have a field day with that news? One of my fave economists, Danielle Di Martino Booth, had this to say on Twitter about Powell’s about face with rate hikes…. “it is undeniable that there was a huge about face on the part of Jay Powell…at no time in history have the fortunes of the U.S. stock market been so tethered to the real economy.” – Danielle Di Martino Booth on Twitter.

You see, it’s not just the physical act of pausing rate hikes that got Gold on the rally tracks, instead, it’s all about “why the Fed is pausing”… And that my friends is the thing that I’ve been talking about for some time now, and that is the Fed Heads pushed the economy into a corner with their double barreled rate hike cycle, and now, they have to stop because the economy can’t take any more rate hikes, and out with the bathwater goes the Fed’s Credibility… For haven’t they been the ones talking about how “strong and robust” the economy is?  Well… look again Fed Heads, did you hear that? In doing my best Ross Perot imitation…That’s your credibility creating a great sucking sound… do you hear it? 

So…Gold and Palladium weren’t the only winners on Friday… The currencies led by the euro, started winning back the lost ground they had lost in the past 10 days… 10 days ago, I thought for sure that the tide was turning on the dollar, but then it fought back… And now it will have to fight back again if it wants to regain some momentum…

The Aussie dollar is pushing the currency appreciation envelope to close to 72-cents, the Russian ruble in on the rally tracks, and so too are a number of other currencies this morning… The Big Question will be can they hold their gains, and not give them back like they did last week? Now that would lead one to believe that more good things are in store for the currencies VS the dollar… But like I said, we’ll have to wait-n-see…

I had an email blurb sent to me from the GATA folks this past weekend, and in it was something that I’ve heard whispered about, but with no one ever really coming out and saying it’s true… Here it is from the GATA Folks… “At this distance in time it’s just hearsay but Swiss gold fund manager Egon von Greyerz tells King World News tonight that reliable sources tell him that French President Charles de Gaulle was sure a half century ago that the United States had already exhausted its gold reserve through its price-suppression policy.”

Now, I’m sure that we could get hundreds of pictures of Gold Bars in Ft, Knox if we wanted to… But there are two questions one should ask about the pictures…. 1. Are we certain that we’re looking an pure physical Gold, or Gold plated, whatever? And 2. Are we certain that the U.S. has claim to all the Gold in Ft. Knox? Could it be that most of it has been swapped out and we’re just holding it in safekeeping for the actual owner? And one more bonus question… What did it take so long for the Fed NY to give Germany back its physical Gold bars, if….. the Gold was sitting there unencumbered by any swaps or liens?

OK… enough of that, one of these days though, this is going to make one hell-a-va movie, no?

European Central Bank (ECB) President, Mario Draghi, is giving a speech today, and the currency traders will be all ears to hear his take on how the ending of the bond buying program is going that ended with the old year on 12/31/18.  I think that Draghi, in his normal Operating Mode, will throw the euro under the buss with this speech, for he too sees what’s going on in the U.S. and knows that once the total trader sentiment changes and they begin to sell dollars by the truck load, the euro will benefit from that, and with the Eurozone economy teetering right now, he feels he can’t let the euro start rising…   That’s my take on Draghi’s mindset, and his fears, and I of course could be wrong… Let’s hope, for the euro’s sake, I am wrong!

The U.S. Data cupboard is still having a data vacuum, as on Friday, the Durable and Capital Goods Orders data was “delayed” and didn’t print as scheduled.  

Before we head to the Big Finish today… I wanted to drag something out from the past, that I made a BIG Deal about at the time, and that is the Tax Reform Act of a year ago… I said at that time that the $1.5 Trillion tax cut was not for you and me, but more for Corporations and Big Business to make capital improvements and expenditures…. But… and it was a Big BUT, I said then that I doubted that the tax cut would be used like that, and instead, these corporations would use the tax cut revenues to buy back their company’s stock…     

Well, here are 1 year after the announcement of the tax cut, and today I saw this in   “The National Association of Business Economics’ (NABE) quarterly business conditions poll published on Monday found that while some companies reported accelerating investments because of lower corporate taxes, 84 percent of respondents said they had not changed plans. That compares to 81 percent in the previous survey published in October. “

So… I’m slapping myself on the back and I’m not liking it… for I was afraid that this would happen, and the aid to the economy wouldn’t happen, and that’s exactly what’s happened… Well, 84%, which is a pretty large number, don’t you think?  UGH!   Sometimes I don’t like it when I’m right! 

To recap…  On Friday last week, Jerome Powell did an about face on the Fed’s Great Balance Sheet Unwind, or Quantitative Tightening, and talked about the need to pause… This added with his previous comment that physical rate hikes may need to be paused, got everyone thinking that the economy must really be showing signs of depression, and with that thought Gold rallied $22 on the day! The dollar got sold, currencies were bought, and we went back to two Fridays ago, when the non-dollar assets all rallied, only to give back their gains the next week… Will this be a wash, risnse, repeat of that? 

For What It’s Worth… I couldn’t believe my eye when I read this article last week, it’s telling us that the Shale Oil Production (Fracking) could be diminishing, and it can be found here:

Or, here’s your snippet: “The shale tidal wave may finally be starting to ebb.

The largest oilfield services company in the world says that shale drilling activity is slowing, creating an uncertain outlook for 2019.
The recent volatility in oil prices has created “less visibility and more uncertainty” on spending by shale companies in 2019, Schlumberger’s CEO Paal Kibsgaard said on an earnings call on January 18. Shale drillers are “generally taking a more conservative approach to the start of the year, again delaying the broad based recovery in the E&P spend that we expected only three months ago,” he said.

Kibsgaard said that spending from the shale industry could be flat or down this year relative to 2018. That could translate into lower drilling activity, while E&Ps focus on drawing down the enormous backlog of drilled but uncompleted wells (DUCs). Companies working through DUCs could keep production aloft even as drilling slows, but output would likely fall relative to 2018, while decelerating further in 2020.

Schlumberger’s chief executive also warned that the shale industry could see other problems going forward that could be even more significant. Shale drilling suffers from a precipitous decline in output soon after a well is completed. After an initial burst in output, wells see a rapid decline in production.”

Chuck Again… WOW… I was very surprised to see this… I’ll keep my opinion on this to myself, regarding Fracking, but to hear that it’s petering out, is quite interesting in my opinion….

Currencies today 1/28/19… American Style: A$.7175, kiwi .6835, C$ .7555, euro 1.1415, sterling 1.3145, Swiss $1.0073, European Style: rand 13.6505, krone 8.5235, SEK 9.0620, forint 278.47, zloty 3.7568, koruna 22.5405, RUB 65.97, yen 109.55, sing 1.3540, HKD 7.8458, INR 71.05, China 6.7456, peso 19.06, BRL 3.7672, Dollar Index 95.83, Oil $52.72, 10-year 2.76%, Silver $15.72, Platinum $811.60, Palladium $1,354.58, and Gold… $1,300.05

That’s it for today, except…  A Great Big Happy Birthday to Chris Gaffney! I’ve known Chris since the 80’s… We worked together at Mark Twain Bank and EverBank, he was always “there” for me…  So, Happy Birthday buddy, and I hope you have a Grand Day!  Saturday was my younger sister Joan’s birthday… I hope her day was grand! Our friends from New Jersey, Jack and Loraine arrived here this past weekend, So hail, hail, the gangs all here! And with that the great band, Chicago, takes us to the finish line today with their song, and one of my faves: Hard Habit To Break…   I hope you have a Marvelous Monday, and that Chris has a blessed birthday! Remember to Be Good To Yourself!

Chuck Butler