Updated comments on the equities, oil, gold and the US dollar
Rick Ackerman joins us today to update his comments on the markets, oil, gold and US dollar. There is not a lot changing his mind in most of these markets but he does share some targets that he is watching.
Click download link to listen on this device: Download Show
He has been on a hiking trip this week.
Rick – that was funny “the markets are like a chicken on LSD”. Many correlations are starting to break down, and everything is on auto pilot until we get to next week.
Prior to 2014/2015 when the commodity rout and dollar climb went into overdrive, you can see the good correlation between Long term treasuries and Gold. I believe after we see a small rate hike that this correlation will re-establish itself.
Axel Merk, Stewart Thompson, and even Matthew have pointed out that the last few times in history when the Fed raised rates (especially when the Real Rates are still in negative territory) that it actually was bullish for Gold. I am not sure Big Al or the general investing community really gets this yet.
Conventional herd wisdom is the following:
“Gold is expected to struggle once the U.S. central bank raises interest rates, as the precious metal doesn’t pay interest and costs money to hold, making it less appealing that other havens like Treasury bonds. But any delay to higher rates will likely trigger a rally in gold prices, analysts say.” –Tatyana Shumsky
This is exactly why the COT report shows the Hedge Funds going so aggressively short going into the Dec 16th FOMC. They believe that once the rates start rising that it is all over for Gold. For the initial announcement they may be temporarily correct. Mid-term they will be dead wrong.
As Doc and I discussed the other day, after reviewing that Claude Maund article, the Commercials are in their most bullish posture in a long time (14 years) and they are typically the “smarter money” because they are sourcing materials for supply.
Once the investing community gets it through it’s thick skulls that a 25 basis point rise is small potatoes, and Real rates will still be negative, then Gold may start to get a bid. This may lead to a really nice short covering rally from the over-confident Hedge Funds, and it may teach them a valuable less about Precious Metals.
There are NO perfect correlations. The USD and Gold do not have to always be an inverse relationship. The Yen and Gold track most closely, but they don’t have to keep doing that. The Long-Term treasuries used to track with Gold, but the last 2 years they’ve had an inverse relationship, but that can flip back as well (and likely will). Lastly, just because the Fed raises rates doesn’t equate to Gold sinking. Initially the knee-jerk reaction will be to sell Gold, but then when reality sets in that we are not at 4-6% interest rates and it is still a negative environment, and the Fed is backed into a corner, then Gold will spike and catch those Hedgies on the wrong side of the trade. Now, if they continually keep raising rates, then there is a point where Gold will suffer. I find it hard to believe we can raise rates 200-400 basis points, so that isn’t going to happen anyway.
#1 excels
how many did they raise rates 2002-2006..?
LPG weighed in on this v recently…re raising & gold
You have ti include Adam Hamilton
Yes, I remember LPG also mentioning it recently. I didn’t know about Adam Hamilton also mentioning it, but it is very important point to stress right now.
Even if they raise rates a little, the Real rates are still in the gutter, and in the past Gold has still flourished in this kind of environment. There may be an initial knee-jerk reaction to sell Gold, but once things settle in how trapped the Fed is from continuing to keep rising, then people will finally start to realize that we’re in a sinking ship of debt that can not be serviced if they raise rates any further. They will blow up the derivatives markets if they raise the rates 200-400 basis points, so then the real market jitters will begin. At that point Gold and Long Term Treasuries should get their bid.
Cheers!
excels- Hamiltons been stomping on the table about rates & gold for longer than anyone
go to Zeal on 321gold..
Cool. I have read some of his pieces before on 321gold, and may have very well been influenced by his thoughts as well. I read a lot every day, (dozens and dozens of articles and editorials), so it is hard to remember where all the ideas come from. Many wise students of the markets have made this point though.
I need to go re-read some of his thoughts again for a refresher on his outlook. Regardless, I’ve looked at the research from multiple people and have seen that gold rose during rising rates a number of times – it is a fact. The question will be, will Gold do it again this time? I’m leaning towards yes for the mid to longer term.
OK- Found his recent missive on Zeal and he hits on this point big time! Thanks Agatha.
This is a very long article and this passage is about mid-way down, but the parts before and after it are worth the read:
________________________________________________________________________
Gold’s Artificial Lows 2
Adam Hamilton, CPA December 4, 2015
“There is nothing gold-futures speculators fear more than Fed rate hikes. They believe higher rates are gold’s ultimate nemesis, since gold yields nothing. As higher rates lift general yields, they are sure that gold investment will collapse as investors migrate away. While this certainly sounds logical, the problem is history proves just the opposite. Gold actually tends to thrive during Fed-rate-hike cycles, powering higher.
It turns out there have been 11 Fed-rate-hike cycles since 1971. In the majority 6 of them, gold actually rallied an average of 61.0% higher during the exact Fed-rate-hike cycle spans! During the last one that ran between June 2004 and June 2006, the Fed made 17 consecutive hikes more than quintupling its federal-funds rate to 5.25%. Yet gold still surged 49.6% higher over that exact span! How can this be?
Higher rates are far more damaging to overvalued stocks and bonds, and gold is the classic alternative investment that moves contrary to stock markets. So gold investment demand for prudently diversifying portfolios soars when the Fed is hiking rates! Gold only fell an average of just 13.9% in the other 5 Fed-rate-hike cycles because they began when it was already overbought way up near major secular highs.
But with the extreme leverage inherent in gold-futures trading, these speculators can’t afford the luxury of thinking beyond the next hour. So when they see gold fall as their peers sell even on a historically-false premise, they pile on. And that piling on of extreme gold-futures shorting since the FOMC’s late-October meeting with that hawkish surprise has reached record extremes. That’s why gold hit new lows.”
Here’s a quote along the same lines of thinking from Axel Merk in his article that Cory posted on this site last Wednesday 12/02/15.
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“…..And while regulators have made the financial system more robust against some shocks they can imagine, we imagine any shock is more likely to come from places were we don’t expect it; more importantly, it may come from a place where the Fed might not be able to provide relief. Market jitters a few months ago because of losses at Glencore PLC, an Anglo-Swiss trading and mining company, come to mind as a possible candidate for turmoil in the market. Turmoil in a Chinese brokerage firm or some other obscure place could also be a source for trouble in the markets.
It wouldn’t be the first time that the Fed is raising rates into a slowing economy. So where should investors hide, or better yet, make money? First, let me mention that there’s no assurance that risky assets may indeed plunge. The buy the dip mentality has proven profitable for many investors, and it may well continue. But even investors that are very optimistic about the market may want to do a thorough stress test on their portfolio. At a recent conference, an “investment coach” explained how investors are diversified across tens of thousands of stocks with a global stock portfolio, suggesting nothing could possibly go wrong. We beg to differ. We see diversification as creating a portfolio with underlying assets that aren’t highly correlated with one another. That’s no small feat in an environment where the prices of so many assets have moved up in tandem.
Got gold?
“It’s one of the reasons why we often mention gold. Gold is special because it isn’t so special: it’s a shiny brick that doesn’t pay a dividend and doesn’t change. It’s the world around it that changes. Because it has less industrial use than other commodities, we believe its price dynamics are less prone to the ups and downs of the economy and, overall, less complex. As we pointed out in our October Merk Insight, Gold for a Bear Market?, gold has been a profitable diversifier in each bear market since 1971, except for the one induced by Paul Volcker in 1980. We don’t think we are about to experience massively positive real interest rates as Volcker imposed at the time, but of course there’s no assurance that a) there will be a bear market; and b) that the price of gold will perform well.”
Got cash?
“The classic zero correlation asset for the bear case is cash. We like cash, but we think the U.S. dollar may be at risk – more on that in a bit.”
Let’s talk dollar…
“So we have been told the Fed will hike rates, and that there’s nowhere for the U.S. dollar to go up. Yet, we observe that the greenback has been rallying in tandem with the stock market during many rallies of late (at least the last 18 months). Conventional wisdom, however, has it that the dollar benefits from a “flight to safety”, i.e. when the stock market is performing poorly. Instead, during down days – and the turmoil in August is a case in point – the dollar has been selling off. Importantly, when we look at how speculators are positioned (based on recent “Commitment of Traders Reports”), we see extreme optimism reflected in positions favoring the U.S. dollar versus other currencies (and gold). And who can blame them given Mr. Draghi’s threat to further deploy the ECB’s bazooka. Yet we would not be surprised to see some “selling on the news” when the Fed finally starts raising rates……”
The key is exchange rates. It doesn’t matter if they are raising or cutting. All that matters is the difference between yields in the US and the rest of the world.
That’s a big factor for sure.
“Axel Merk, Stewart Thompson, and even Matthew…..”
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Oh that was funny. Really damn funny. I laughed until I wet myself!
I didn’t intend for it to be. I posted both Adam Hamiliton & Axel Merk snippets up above, with links to the full article.
Birdman, I’d be interested to get your perspective on what you think may happen. It is curious to see that so many believe the Gold has to fall from now on just because the Fed may raise rates. The COT position of the hedge funds is clearly betting on gold to fall.
Here is on of the Stewart Thompson articles discussing The Rate Hike and Gold:
__________________________________________________________________________
Rate Hikes and Gold: Bring It On!
By: Stewart Thomson | Tue, Nov 10, 2015
http://www.safehaven.com/article/39505/rate-hikes-and-gold-bring-it-on
These were some of the bullet points in Thomson’s article that seemed relevant:
11. The second reason for the recent price decline is that gold tends to sell off with significant intensity, ahead of a rate hike by the Fed. The combination of El Nino and the Fed rate hike preparations were a potent short term headwind for gold.
12. The good news is that the US dollar typically tends to decline, right after the first rate hike in a tightening cycle. Please click here now. If Pete Fay is correct, and I think he is, the US dollar is poised to begin a significant sell-off in early January, following the Fed’s first rate hike at the upcoming December meeting. That’s fantastic news for gold price enthusiasts around the world.
13. Most analysts that think rate hikes are coming, think so because the US economy is improving. In stark contrast, I argue that rate hikes are coming because the economic upswing has been anemic.
14. Low rates have pressured savers to pull money out of banks, and gamble their savings in “risk on” markets. That’s created an implosion in money velocity, and while there’s no guarantee that rate hikes will reverse that velocity, the policy of forcing savers to gamble has been a complete disaster.
15. Government size and red tape have grown exponentially as rates have stayed low. If rates go any lower, money will pour out of government bonds and into mattresses, making an already horrific situation “beyond horrific”.
16. It’s up to Janet Yellen to fix what Alan Greenspan, Ben Bernanke and US congress have ruined, and I think she will finally begin to do so, starting on December 16th.
18. As the dollar declines when the Fed hikes rates, energy should rise nicely, bringing a new wave of institutional interest to the entire commodity sector.
I think both gold and oil are in the beginning of a consolidation period here that is leading up to the rate hike announcement and that both stand better than even odds of taking off in the coming weeks. So I am bullish on both as they are equally oversold at this time and suffering from sentiment extremes that generally imply a bounce back is in the works.
I’m in complete agreement with that outlook.
I was wondering what you thought of the premise that most investors (including Big Al yesterday) and hedge funds have that Gold should fall when the Fed hikes, due to a strengthening US dollar. In recent history, it is actually more common for Gold to rise when rate hikes are initiated by the Fed. The times where Gold did fall it was at a much higher valuation than we see today.
The way the cycles and timing are lining up appear to support the idea commodities, some currencies and gold could rise after a rate hike. That’s if I am reading the charts right. But the coincidence of the timing does not support any specific viewpoint that gold will always rise with rates. That idea is only partly right in any event. The record says gold rises 60% of the time we go to a hike cycle….not 100% of the time.
Agreed there is no guarantee, and it is only a slightly positive correlation.
The Adam Hamilton article was interesting because it also pointed out the number of rate hikes that happened during one period (17 consecutive hikes and gold still went up):
“It turns out there have been 11 Fed-rate-hike cycles since 1971. In the majority 6 of them, gold actually rallied an average of 61.0% higher during the exact Fed-rate-hike cycle spans! During the last one that ran between June 2004 and June 2006, the Fed made 17 consecutive hikes more than quintupling its federal-funds rate to 5.25%. Yet gold still surged 49.6% higher over that exact span! ”
Another point I made was that Gold is not at a lofty valuation currently like it has been in other cycles where gold did fall after rates were hiked. Here’s related line in Adam Hamilton’s piece up above:
“Gold only fell an average of just 13.9% in the other 5 Fed-rate-hike cycles because they began when it was already overbought way up near major secular highs.”
Clearly we are not in that environment. The thing I am most unsure of is the US dollar, but as mentioned earlier, they (USD vs Gold) don’t always have to be inversely correlated. They often travel in tandem. I think it’s inverse correlation is only around 60% now as well.
Here was an interesting thought from the Stewart Thomson article:
“12. The good news is that the US dollar typically tends to decline, right after the first rate hike in a tightening cycle. Please click here now. If Pete Fay is correct, and I think he is, the US dollar is poised to begin a significant sell-off in early January, following the Fed’s first rate hike at the upcoming December meeting. That’s fantastic news for gold price enthusiasts around the world.”
I realize that he has been very bullish on the metals for a long time, but I don’t see it so much as a broken clock, as waiting until the right combination of market forces are coming together.
1) Finally a rate hike 2) Gold and commodities are in extreme weakness 4+ yrs into a Bear market that is the longest and deepest on recent record. 3) US dollar has surged but may have double topped 4) many times the US dollar actually falls after a rate hike announcement, which may boost commodities in general 5) there’s a 61% chance gold will rally once the dust settles if they hike rates (with a likely potential blow to gold first) . 6) there is weakness in the global economy, many central banks are printing, and the debt load has never been higher in history.
It is just an interesting combination of market events.
+1 Birdman
We discussed this w. Richard/Doc (+ Big Al/Cory) yday and it will be published as part of the upcoming WE show
Best to you,
LPG
Great news LPG.
Thanks Shad, I knew what you meant. Excelsior!
Birdman- you argued against the historical facts I gave to you more than two years ago.
Who cares about two years ago?
Nobody. That’s who.
I wanted to give you credit as well, because you had posted some thoughts, charts, and articles showing how gold moved up in an environment where rates were risen in the past. Your past posts definitely got me thinking a little more about this what has actually happened in the past versus what the main-stream investment media assumes will happen when rates rise. Good stuff.
LPG also had some good past remarks along this same line of thinking.
Cheers!
He’s a broken clock. But by all means give credit for the one time he “might” be right. The jury is still out in any case.
Well, I would say that the Fed has been threatening to raise rates for years, so everyone has been waiting to see what would happen when they finally did. Next week should be the culmination of that wait if they finally do raise rates. If Janet Felon and the Fed for some reason admit that they can’t raise rates (which I still wouldn’t put past them), then Gold should get a boost off of that news as well.
Regardless, even if the Fed does hike and Gold initially sells off, I just don’t see how anyone can believe that the Fed can raise rates by 200-400 basis points to get back into a “normal economy”. I think we are in the new normal, and this Dec 16th, will be a turning point longer term (even if it is a fizzle non-event on the news in the short-term).
You’re being irrational and illogical Bird. History is not a broken clock and the fact that you didn’t like the facts two years ago is just as meaningful as if you rejected them today.
Everyone has an opinion. You have read mine for today. If the times change I will also change with the times. What ever was said two years in the past is irrelevant to this topic now because market conditions are now different from then and in the meantime gold has just recently suffered a very meaningful decline. I know you did not predict that decline so whatever you wrote way back in the past is therefore equally irrelevant today.
Of course it is irrelevant.
Whatever you say guys. (Lol)
Gary is either in hiding or playing the tables in Vagas on vacation.
Yellen gonna raise, markets will correct, QE4 will come in, then we get the blow off top that Gary has been talking about, then we get the BIG ONE! I expect the QE to be used to prop up oil this time around and to run the DOW up to 25K.
………and all of that will continue to kill this economy!
****** LAST EVENING’S X22 REPORT WAS THE BEST EVER, WE ARE LIVING IN A NATION OF LIES *******
This is a must listen video especially the first part on retail sales and employment. Since Nov 2011 to Nov 2015, how can unemployment be down and retail sales be falling? Something is not right……somebody is lying! So far Christmas sales are a bust!
https://www.youtube.com/watch?v=Go31esixgBw
Thanks for this interview.
Unbelievable………isn’t it!
No, its not unbelievable at all. The public accepts the bs on every level..
They BELIEVE bs from on high…
good one…A………
OK,…………..so why is everyone so down on Donald Trump for telling the truth! This maybe our chance to really get someone in there who will tell the public the truth!
I do not disagree with some of what he says.
Here’s some food for thought:
Gold low in June 2013 = 1183
USD Index back then: 84-85.
USD Index today: 97
Gold today: $110 lower than in June 2013.
Best to all,
LPG
Yellen needs to crash the markets with rate hikes in order to have an excuse to bring in QE4 for the next leg up (includes bailing out big oil).
Here’s some more:
appreciate LPG.. what was the dollar in 2011..?
The USD traded between 81+ and 72.70 in 2011.
It was at the current levels in 2003 yet gold was just $350ish.
LPG – I was just mentioning you up above. I hope I didn’t take your thoughts out of context or misunderstand you regarding the possibility that Gold could very well rise even if the Fed hikes rates. There’s lot of info up above on the subject, and I’d be curious to get any thoughts you had on what was discussed in those articles from Adam Hamilton, Axel Merk, and Stewart Thomson.
Hope all is well!
LPG, I wrote you back on the market wrap. Yes, most of the diatribe up a above is discussing the fact that even if the Fed hikes rates, that real rates are still negative, and unless the Fed starts talking about raising rates 200-400 basis points to get back to a “normal economic environment” then I doubt the 25 basis point rise is going to affect the nominal real rates very much. They’ll still be in the gutter, savers in bank deposit products will still be getting punished, and this will still be a positive environment for Gold. The times where Gold fell when the Fed hiked rates it was at much more lofty pricing levels, and we are clearly not in that situation at present.
Thanks man – Best to you!
jason…kwn is better known as ‘rubber room’ they lost a ton on gold yrs ago.. they’ve been saying PANIC for YEARS.
The Big Short Official Trailer #1 (2015) – Brad Pitt, Christian Bale Drama Movie HD
Even though it’s a Hollywood mega-cast drama, it still may be an interesting film.
Thanks Matthew
food for thought+DEBT
A rise in rates at the short end of the curve has no effect on gold prices. As long as LONG TERM rates remain below inflation, then gold prices do well. A quarter point rise in the administered rates puts a stop to Eurodollar funding its QE on the largesse of US treasury bill markets, and provides funding for US long dated treasuries.
That is the point that as long as real rates remain negative (ie…Long term rates below inflation) then gold doesn’t need to sell-off if rates are risen, and may actually do well.
you should be on Ker…Fran…
Seconded! FranSix is an interesting and thought provoking contributor.
Anytime for any of our family. I AM SERIOUS.
Seriously Corey, do you listen to what your guests say? You put your own words into something that was not said.
You have successfully contrived a narrative that Rick Ackerman did NOT purport. In addition, this contrived narrative (that gold must move up within the next 2 days) is then repeated on the “Doc” Richard Postma interview.
Unless you two had a private conversation offline (which we are NOT) privy to, I have no idea where you come up with this sh1t.
Corey, do you actually listen to your guests? Or do you in fact spew your own preconceived ideas into the narrative?
Can you please pay attention to what your guest says and be a tad bit more professional in your approach?
thank you,
the management
Agree with Rick Ackerman that the stock market is like a headless chicken on LSD.
🙂
is gary savage no longer providing commentary