On Monday, Treasury Secretary Mnuchin said the G-7 will be holding a video conference Tuesday, which will include all the central bankers. What is on the agenda? It has not been announced so we are left to GUESSING. The Swap LINES have been opened, massive asset purchase programs are in place, new facilities have been created and fiscal stimulus is raining down in all the old familiar places. The OIL agreement is in place and the FED has even embarked on a program of exchanging CASH for high yield bond ETFs in an effort to prevent a continued negative feedback loop in corporate debt markets. What is there for the G-7 to discuss?
As soon as the announcement hit the wires the GOLD began to rally and somewhat insignificantly, the YEN also strengthened. Overall, the DOLLAR was steady, although it weakened against the YEN, British pound, Aussie and Canadian dollars. WHY? The announcement came at around 7:50 a.m. EST and if you look at the hourly charts you can see when those currencies begin a more robust rally.
The EURO attempted to rally but with the European markets closed Monday the currency was unable to overcome all the negative news over the last four days from the EU. The European Commission was only able to paper over the hostile feelings between Germany/Netherlands and France/Spain/Italy over the issue of a EUROBOND to create a harmonized debt instrument to fund the negative repercussions from the Covid-19 economic disruptions.
Maybe, the G-7 is going to admonish the Europeans for their failings since it is the lack of economic cooperation within the European Union that is keeping UPWARD PRESSURE on the U.S. DOLLAR. No matter what the FED and TREASURY do to ease pressure on the DOLLAR, the lack of EU unity will increase the appetite for DOLLARS.
ECB President Christine Lagarde needs to ramp up the ECB balance sheet by another 2 TO 3 TRILLION and explain that this is within EU law as determined by the ECJ, and even the German Court at Karlsruhe. Chancellor Angela Merkel and Bundestag boss Wolfgang Schaeuble can pretend all they wish that there is no EUROBOND but the ECB’s growing BALANCE SHEET works because the global financial system believes it is guaranteed by the Germans.
How else can you explain why Italian BTPs are yielding 1.8% and Spanish and Greek yields are yielding even less? It is the implication of the German guarantee. Chancellor Merkel ran political interference for Mario Draghi as he “did whatever it takes” to preserve the EURO. The EUROBOND MAY BE ANATHEMA TO THE GERMANS BUT THE CURRENT LEVEL OF SOVEREIGN YIELDS REFLECTS THE IMPLIED GERMAN CREDIT CARD.
Will this be the main issue at the G-7 Tuesday or will it be a direct attack on the DOLLAR in an effort to ease some of the debt burdens on so many debt laden foreign borrowers? Watch the markets for clues tonight, especially as to why the YEN rallied. We will all ZOOM in tomorrow.
Tags: Euro, Eurobond, European Union, Fed, G-7, Germany, U.S. Dollar
April 13, 2020 at 8:23 pm |
Meanwhile, GCM tonight is outpacing “spot” gold by $10 with the gap between the two at $53-54
GCM is just a stone’s throw from $1800.
I still think any G-7 announcement is about relief/moratoria for distressed EMs
April 14, 2020 at 10:10 am |
Mike–nice call on G7 discussion now on to the G20 to get some bakbone because thinking people now the G7 is merely an atavistic remnant of a colonial past or the world of Soviet containment
April 13, 2020 at 8:41 pm |
Yra you’ve been all over this! Now with Trillions sloshing around it’s more imperative to be on top of this asset class.
We’ve been having discussions about the availability of Gold in the room. The Sprotts ETF holds Physical in Canada and personally owning Coins or bars is still the best bet. Futures is the next best vehicle. What happens to the GLD ETF if everyone would want delivery. You risk getting cash settled with no Bullion. Gold is close to electing a $2500 target. Know what your goal is for owning the instrument.
April 13, 2020 at 9:07 pm |
Thanks for the wisdom Yra.
April 13, 2020 at 10:27 pm |
Good analysis.
Since the Bazooka on Thursday, the SP 500 is up about 1/2%……..quickly running out of Bazooka shells.
I think the Gold market move since Thursday morning, means the FED/Treasury have bitten off more than they can handle.
You can’t hold up everything forever……..starting very soon, I think market support measures will be sold into immediately.
April 14, 2020 at 5:45 am |
Yra,
Great post!
Seems that all signs eventually lead to EU gold bonds? As you have always said, gold goes up during lack of confidence in a central banker’s ability to keep the system stable, not wars. Looks like the central bankers have lost control since all they do is print. I believe ultimately, in the end game — the lenders of last resort could be the gold miners, who are by default the last standing central banker, when all else fails. Let’s not forget however, gold bonds are actually gold-in-motion, because the lien on the gold allows money to flow with confidence– depending on the rule of law in the nation issuing the gold bond. No thanks, to gold bonds from a communist nation, sorry China.
Regarding gold ETF’s — be careful who has legal title to the actual gold in the fund, usually it’s the trust, not the holder of ETF units.
I think eventually all hoarders of physical gold can become the lenders of last resort and finance whom ever they please in the private sector. Gold bugs should start thinking like investment bankers, after all “he who has the gold, makes the rules.”
Bosko
April 14, 2020 at 9:40 am |
Bosko.
Which Gold ETF do you think is good?
Shocked
April 14, 2020 at 10:49 am
Shocked,
Unfortunately gold ETF’s by their structure as a “fund” require a trust format to be traded on a public exchange, so personally I do not recommend them. Please email your question to:
bosko@kindigo.com
Regards,
Bosko
April 15, 2020 at 9:47 am
Hi I use the Sprott Gold and Silver closed end fund(CEF). All metals are allocated meaning that Sprott does not lease out the metals as say GLD does. You can go to their website and check the numbers on the metal bars. Second the silver and gold are stored in the Royal Canadian Mint and there is a provision that you can take possesion but you have to take possesion in LME bars which are 400 ounces so does not apply for many investors(certainly not me). Also as a closed end fund usually trades at a discount to NAV but not so much lately. Finally for tax purpose gains on physical coins are taxed at 28% while gains on CEF, as a stock, are taxed at 15% or 20% depending on your income Don’t get me wrong I do have physical coins but storage becomes a problem with silver. Sprott also has gold and silver CEFs as well as a white metal fund FWIW The Bigman
April 14, 2020 at 8:17 pm |
Judd
When you say gold is targeting $2500, what time frame do you project?
Summer time? Autumn? Year End?
Thanks for your thoughts
Mike
April 15, 2020 at 5:16 am |
I need to see two daily closes over yesterday’s high, and sustained and closing price action above to trigger the target. Time is irrelevant to my work, only price matters. I’ve seen a 17 point target achieved in 2 days in the 30 Yr.Bonds, which i found quite astounding. 2017 4th qtr Spoo breakout above 2500 took 1 yr. to test the 2965 target with a 2944 high before breaking 500 Points. Time is irrelevant. In my humble opinion, that it a false narrative perpetuated by Wall Street so they can keep your money.
April 15, 2020 at 6:19 am
Judd
You are probably singularly alone in saying time is immaterial when making a declaration on a price objective, especially when that target is a meaningful 50% above current levels.
Time value of money is a key to investing, not necessarily a Wall Street invention to separate one’s money from his wallet.
I get it. You don’t want to put a timeframe to your price prediction. Frankly, I have never seen a technical analyst NOT attach some sort of time frame to his price prediction, especially one as big as yours with gold going to $2500.
I think gold goes to $7000.
Time, of course, doesn’t matter.
April 15, 2020 at 6:59 am
Judd & Mike-
I am thinking your are both correct.
$2500 seems like a good price target by mid to late May. $7000 seems like a good price target by year end.
Assuming we get another round of heavy global stimulus, it should be a “waxed hallway” from $2,000 to $2500. Once this happens, the mainstream will become interested in buying gold. The decade plus long conversation on Notes from the Underground will become the theme in financial circles everywhere as the global monetary system loses credibility. (Note: it lost all credibility with this group a long time ago.)
As Bosko said, “he who has the gold makes the rules.” Let me add to this:
“He who has the physical gold makes the rules.”
He who owns Paper Gold (GLD, GC, PHYS, GDX, other Miner Stocks) owns an SEC regulated taxable piece of paper.
That tax rate is subject to change. So are the delivery requirements of those contracts. And you can bet your tush that all of those rules and rates will be a changin’.
April 15, 2020 at 8:12 am |
TraderB
I love your enthusiasm, but I don’t see those time frames.
Year end $2500 is quite possible, especially if Round Two of Covid is ugly. How about an Election Night Black Swan where a contested election leaves us with no new confirmed president?
$7000 gold will be associated with a truly dystopian financial landscape. 2020 ain’t that dystopia. I reckon that comes sometime in a post 2023 world.
Unlike Judd, I will stick my neck out and predict gold to hit its all time high of $1920ish (intra day) by no later than June 1st.
As $2000 will be such a BIG psychological level, FOMO might even take that high. If so, it will have arrived in a very overbought state, worthy of a sharp correction.
Hope I got the train schedule right.
Mike
April 15, 2020 at 9:06 am |
Few are talking about it, but Year 2 of the Spanish Flu was much worse than Year 1.
As for a vaccine, most are saying 18 months, I have no idea, but HIV is at least 45 years old, and still no vaccine.
April 15, 2020 at 9:55 am
Excuse me, but didn’t I just say Round 2 of Covid could be more dangerous, just like the Spanish flu
April 15, 2020 at 9:52 am |
Given the scarcity of gold for sale and the question of whether the CME has sufficient gold if traders demand delivery on contract expiration, is it possible that we will see gold go into backwardation in the coming months?
April 15, 2020 at 9:57 am |
Bigman
We are kinda already there
GCM/Z is flattish when it ought to be at least $2.50ish/month or approximately $12-15
April 15, 2020 at 10:36 pm
I don’t ever recall seeing it this difficult to secure physical gold. Even back in 2011 when Gold was 1900+, all the various coins and bars were all readily available.
Right now if you are lucky to find something it is most likely a 2020 American Eagle or a 2020 Aussie Kangaroo. It is all freshly minted gold. None of the older stuff is being sold back to the dealers.
People who want to buy gold to trade it buy GC and GLD. People who need gold buy Physical. They are buying it to own it, permanently or for a very long time. That trade requires incredible conviction and comes with tremendous opportunity cost. The fact that this many people are rushing to buy the physical says everything.
In a crisis you have to buy the things you will need when you can, not when you have to.
April 21, 2020 at 6:01 am |
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