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Commentary for Tuesday, April 19, 2016 (www.golddealer.com)

Gold Market Newsletter with Richard Schwary

By Ken Edwards and Richard Schwary of California Numismatic Investments Inc …..

Gold closed up $19.00 today on the Comex at $1,252.60. This is not the “magic” number but it is magic enough if you know what I mean.

The reason for this upward pressure was two factors – the first being the dollar. The release of dismal housing numbers was further “proof” that the Federal Reserve will sit on its hands relative to interest rates at least for the upcoming meeting later this month. This pushed the Dollar Index lower – we closed yesterday around 94.46 and we are now trading around 94.06 with a negative bias.

The second factor helping gold today was crude oil. After the initial sell-off in crude which happened Monday after the latest oil summit fell apart crude oil recovered between Monday and Tuesday and is now trading at $41.00.

Finally gold’s moving averages are holding up rather well – compare today’s close ($1,252.60) with the 50 DMA ($1,235.00) – the 100 DMA ($1,164.00) and the 200 DMA ($1,143.00). We are once again above all three important moving averages which is solid mojo.

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Technically the one-year gold price chart is interesting in that we are consolidating around the $1,250.00 mark and were trading around $1200.00 in April of 2015. Keep that number in mind – this is encouraging for longer term players and supports the newly minted notion that gold has in fact bottomed.

This is not my view particularly but it is encouraging, my view still holds on to the notion that the Federal Reserve will raise rates again in 2016. But recent economic news might dissuade this notion among the governors especially if they practice the Financial Hippocratic Oath – Do No Further Damage.

So how happy am I that gold is “muscling” up in the $1,250.00 range? Pretty happy but like I said those pesky interest rates are like a stone hanging around gold’s price neck. But let’s assume that the economy is faltering (a big assumption) – this would mean the Fed will not raise interest rates and in fact may have to lower them again. Under this scenario gold would be pushed above its now rather large overhead resistance area which is seen approaching $1,400.00.

Also keep in mind that if this scenario unfolds traders may jump on the opportunity which means the area between $1,275.00 and $1,375.00 would be crossed quickly. So what to do? Wait, you have nothing to lose and second guessing the price of gold in this traditional area serves no purpose.

This from Mortgage News DailyDismal Early Spring Housing Numbers – “There probably isn’t a lot of backslapping going on in the housing world this morning.  March residential construction data released by the U.S. Census Bureau and the Department of Housing and Urban Development was disappointing to say the least, with permits and housing starts falling from February levels and both estimates falling way short of analysts’ predictions.  That March is the beginning of construction season in most of the country and that the downturn was almost universal across regions only makes it worse.  The less economically critical completions data did paint a more encouraging picture for current housing inventories.”

Silver closed up $0.72 at $16.96. Remember what I said about silver running if you were waiting for that recent bottom around $14.00. Silver is still cheap and still represents one of the best values in precious metals today. Who cares if you missed the goofy bottom?

Also keep in mind that silver bullion has seen recent and steady accumulation by ETF’s and an unusual amount of long positions held by paper specs so a rally at the lower end of its current trading range was not unexpected.

Finally the price of silver hit reached its highest level in 10 months as the gold/silver ratio fell to just under 74.00 and it has recently been over 80 – “normal” if there is such a thing would be considered in the 40 range.

Platinum closed up $38.00 at $1014.00 and palladium closed up $25.00 at $583.00. Platinum is trading for $238.00 less than gold.

Alexander Hamilton, a Founding Father getting lots of attention in popular culture these days, may be staying on the $10 Federal Reserve note after all.

CNN is quoting a “senior government source” as saying that Treasury Secretary Jack Lew will replace the portrait of Andrew Jackson on the $20 Federal Reserve note in the future with that of a woman, a move that would keep Hamilton where he currently resides on the $10 note.

Jackson became the target of the Women on 20s campaign that made headlines in 2015 as it sought to replace a president who was behind the mass relocation of Native Americans by way of what is commonly called the Trail of Tears.

Despite pressure to replace Jackson instead of Hamilton, Lew had until this report maintained that it was the $10 that needed design updates most, for security purposes, and that replacing Jackson was not what was being considered.

Disapproval of picking Hamilton to be replaced over Jackson resurfaced when the cast of the hit Broadway musical Hamilton met with Lew in an attempt to persuade the secretary to keep Hamilton, a Federalist who served as the first Treasury secretary and was behind the establishment of a central bank, on our money.

“Those pressures led Lew to determine that Hamilton should remain on the front of the bill,” CNN reports. “Instead, a mural-style depiction of the women’s suffrage movement — including images of leaders such as Susan B. Anthony — will be featured on the back of the bill.”

Jackson, meanwhile, will be replaced on the $20 with a woman “representing the struggle for racial equality,” according to CNN. CNN also reported that the new $20 note would not be placed into circulation any sooner than 2030, meaning that the goal of Women on 20s will not occur soon.

Underground Railroad pioneer Harriet Tubman was the leading vote-getter in Women on 20s’ poll in 2015. Rosa Parks and Sojourner Truth were also among the poll’s candidates with ties to the fight for racial equality.”

This from David Stockman (ContrCorner) – The Keynesian House of Denial – “We use the term “Keynesian” loosely to stand for economic interventionists of all schools. The followers of JM Keynes and Milton Friedman alike fit that category. So do some of the more rabid supply siders who claim the power to stimulate ultra-high economic growth with the tools of tax policy alone.

capital_cashThe common denominator is economic statism. That is, the assumption that the state, including its central banking branch, is indispensable to economic progress and prosperity.

As the various denominations of the Keynesian economic church have it, capitalism is always veering toward the ditch of under-performance and recession when left to its own devices and natural tendencies; and, if neglected by the wise policy-makers of the central state too long, it lapses toward outright depression and collapse.

Our purpose here is not to correct the particular philosophical and analytic errors associated with each of these Keynesian or statist variants. On any given day we make it pretty clear the central banking based mutation of modern Keynesianism is predicated on two cardinal errors. Namely, the myth of demand deficiency and the false presumption that central bank pegging of interest rates, yield curves and other financial prices will enhance macro-economic performance while not harming the efficiency, stability and efficacy of money and capital markets.

That’s completely wrong. The very worst thing the state can do is meddle with and falsify financial market prices. Sooner or later cheap debt, repressed volatility, stock market “puts” and artificially inflated asset prices drain the genius of markets out of capitalism. What remains in the financial system is raw speculation for the purpose of rent gathering and leverage for the purpose of supercharged gambling.

On the other hand, what gets lost is true capital formation, honest price discovery and allocative efficiency. These are the building blocks of true macroeconomic expansion and rising wealth.

cracked_dollarThe irony is that the theories of Keynes and Friedman were designed to enable exactly that. Yet after having been morphed and melded into the cult of central banking in recent decades they have become a generator of main street stagnation and impoverishment.

In that regard, we have frequently pointed out that behind all the pretentious jargon and faux economic science of the likes of Yellen, Bernanke, Dudley and Fischer is little more than the “D” word. They believe that an economy can never have enough Debt.

At the end of the day there is no other purpose for the lunacy of 87 straight months of ZIRP and the fraud of $3.5 trillion worth of QE/bond-buying with digital credits conjured from nothing. It’s all designed to get the primary economic agents—households, business and governments—-to borrow and spend.

The contemporary central bank based mutation of the old Keynesian and Friedmanite fallacies is rooted in this debt-centric economics but is far more dangerous. Owing to his anti-gold standard worldview, Friedman failed to realize that fiat money was nothing more than debt, but at least he swore an oath of restraint in the form of a fixed rule (such as 3% per annum) for the growth of credit money.

Even Keynes was not completely beguiled by the elixir of debt. His fiscalist angle had more to do with the class snobbery of the early 20th-century English literati than an open-ended embrace of debt.

He simply felt that businessmen were less enlightened than high-minded civil servants such as he had been at the British Treasury. When the former episodically lost their animal spirits, they left the economy awash in excess savings and the working class bereft of jobs. The function of the state, therefore, was to borrow the excess during periods of macroeconomic slack and put it to good use in public works——even digging holes (with or without spoons) and refilling them.

This got popularized in the notion of “pump priming” as originally articulated by New Deal activists such as Mariner Eccles. But the primitive counter-cyclical policy of the 1930s and the far more sophisticated Keynesian New Economics of the 1960s did not embrace the never too much debt predicate of Bernanke and Yellen.

After all, it was LBJs Keynesian advisors who campaigned aggressively for a anti-inflationary tax hike and fiscal retrenchment in the white hot “guns and butter” economy of 1968. The Democrats’ Walter Heller and the Republicans’ Herb Stein differed as to when and how much pump-priming was warranted, but they agreed that it was only an occasional tonic and that the budget should be balanced over the cycle.

This long forgotten catechism of fiscal balance over the business cycle is crucially important; adherence to it would not have led to an endless rise in the public leverage ratio.

When President Kennedy’s New Economics team took over in the early 1960s, they argued for stimulative tax-cuts and temporary deficits. But none claimed that the American economy was drastically impaired because the permanent public debt was only 40% of GDP, not today’s 103%. And they further believed that even the incremental public debt from stimulative deficits would be soon paid back by the resulting gains in GDP and tax collections.

For that matter, total credit outstanding in the public and private sectors combined was only 150% of GDP, not today’s 340%. And that do make a difference. At the century-old historic debt-to-GDP ratio of 150%, the US economy would be dragging around $27 trillion of debt today, not its actual albatross of $62 trillion.

The fact is, the Keynesian fiscalist of the New Economics could not even have imagined today’s leverage ratios on the business and household sectors, either.

Needless to say, the transformation of the ideas of Keynes and Friedman into the doctrine and practice of plenary central banking has resulted in a hybrid mutant. Counter-cyclical pump-priming has now become the practice of permanent stimulus and the presumption that capitalism is always defaulting into underperformance and worse.

Likewise, the temporary allocation of “excess savings” from the private to the public sector has become the permanent expansion of fiat credit money. And this massive growth of central bank balance sheets, in turn, has resulted in a monumental and fraudulent inflation of government bond prices.

Most destructive of all, the Friedmanite 3% rule of money supply growth has become forgotten, inoperative and irrelevant. In a fractional reserve banking system where Greenspan essentially abolished via sweep accounts the need for reserves on deposit money, Bernanke/Yellen nevertheless flooded the system with $2.4 trillion of excess reserves where virtually none were needed at all.

What this means is that policy makers and the main stream media that xerox their proclamations, prognostications and pettifoggery have become myopic. To wit, so long as the central bank is in full-on stimulus mode——and by any historical standard a 38 bps money market rate is exactly that—–the economy cannot fail or lapse into recession. Economic growth and expansion are definitional.

That’s why central bankers and their Wall Street camp followers never see recession coming. It can’t happen on their watch!

So this week we got another flashing yellow light. The core data from the business economy warns that the current tepid and long-in-the-tooth business expansion is coming to an end and that the next recession is lurking just around the corner, if it has not already arrived.

With the March decline, industrial production has now dropped during 13 out of the last 16 months. As Mish demonstrates in the charts below, this has never happened when the US economy was in an actual “escape velocity” mode.

To be sure, Keynesian apologists claim that industrial production is not so important any more. But as we shall demonstrate next week, that’s pure rationalization.

The Eccles Building and its Washington/Wall Street acolytes have become a House of Keynesian Denial because the assumption that capitalism is an 80 pound recessionary weakling without the constant ministrations of the state is dead wrong.

Chapter and verse on that statist error is the topic on deck for next week. Not even the supply siders have escaped its deadly grasp.”

I post the above David Stockman information to remind everyone that just because we have not seen the result of massive quantitative easing does not mean that a fiat currency policy does not have consequences – the clues or information is there it is just not in its usual form (inflation).

The walk-in cash business was solid today – no whale positions but plenty of trades in the $25,000.00 to $50,000 range. The phones were off and on but more on the steady side.

The GoldDealer.com Unscientific Activity Scale is a “5” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 3) (last Friday – 3) (Monday – 4).

Disclaimer – The content in this newsletter and on the GoldDealer.com website is provided for informational purposes only and our employees are not registered financial advisers. The precious metals and rare coin market is random and highly volatile so it may not be suitable for some individuals. We suggest before deciding on a course of action that you talk with an independent financial professional. While due care has been exercised in development and dissemination of our web site, the Almost Famous Gold Newsletter, or other promotional material, there is no guarantee of correctness so this corporation and its employees shall be held harmless in all cases. GoldDealer.com (California Numismatic Investments, Inc.) and its employees do not render legal, tax, or investment advice.


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