December 4, 2015 Gold Monitor

December 4, 2015
Gold Monitor
Martin Murenbeeld / (250) 405-5000
mmurenbeeld@dundeeeconomics.com
GOLD PRICE
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
US$ - Friday p.m. fix
600
08
09
10
11
12
13
14
15
16
Source: London Bullion Marketing Assoc.
TSX GOLD INDEX
475
450
425
400
375
350
325
300
275
250
225
200
175
150
125
100
Global Gold Index
(Capped Gold Index)
52-wk moving
average
13-wk moving
average
10
11
12
13
14
15
16
Source: Thomson Reuters Datastream
XAU
250
225
200
150
52-wk moving
average
100
13-wk moving
average
75
50
25
10
11
12
Nov-30
1061.90
1065.30
1407.50
832.90
41.65
182.54
108.95
0.10
154.00
125.66
2080.41
13
14
15
16
Source: Thomson Reuters Datastream
Dec-01
1065.40
1063.50
1410.00
835.40
41.85
184.39
108.61
0.15
155.84
128.93
2102.63
Dec-02
1055.40
1053.80
1397.00
832.40
39.94
180.85
108.96
0.13
156.09
126.36
2079.51
Gold Price Average (2nd fix, daily) - 2015 to date
Latest price forecast for 2015
Dec-03
1055.45
1061.20
1404.50
847.50
41.08
183.30
107.47
0.14
152.09
128.69
2049.62
Dec-04
1079.25
1083.00
1413.00
877.30
40.11
183.07
107.90
0.23
152.69
134.24
2074.46
1165.88
1166.00
Source: London Bullion Marketing Association, Thomson Reuters Datastream,
Wall Street Journal, Dundee Economics
Can there be any residual
doubt that the Fed will raise
rates on December 16? The
November employment report
released this morning was solid;
there was even an upward
revision in job creation for
October. If the Fed’s intention
all along has been to raise
rates in December, which we
believe and have forecast, this
morning’s report is the nail in
the coffin.
I could argue that other
US data released this week
175
125
Gold - 2nd Fix
Gold - COMEX
Silver - HH
Platinum - NYME
Crude Oil - NYME
CRB Bridge - NYBOT
US $ (Excluding Cdn.)
Fed Funds (Overnight)
US Bonds - CBOT
TSX Global Gold Index
S&P 500
indicate the Fed need not
be in any hurry to hike; ISM
manufacturing data dropped
under 50% (not good – a
six year low), ISM nonmanufacturing data – though
still well above 50% – declined
by a significant percentage, and
US trade data showed modest
further deterioration. Then, while
the press has of late suggested
wage inflation is brewing, the
hard data do not support it. Unit
labor costs are contained and
hourly wage rates have been
Executive Summary
1.The Fed will hike in December; employment data are convincing
2.Which may contrarily have lifted some pressure off gold
3.The RMB is in the SDR basket, and weakened against the dollar
4.US trade data continue to show dollar overvalued
Please see Disclosures and Disclaimers at the end of this report.
Dundee EconomicsTM and Dundee GlobalTM are trademarks of Dundee Corporation, used under license.
12/04/15
Gold Monitor
TSX GOLD/GOLD(US$)
0.35
0.16
0.30
52-wk moving
average
0.14
0.25
0.12
0.20
0.15
XAU/GOLD (US$)
0.18
52-wk moving
average
0.10
0.08
13-wk moving
average
but similar attempts
have failed in the past !?
13-wk moving
average
0.06
0.10
0.04
0.05
Gold equities are
attempting to make a
bottom against gold ...
0.02
10
11
12
13
14
15
16
10
11
12
13
14
15
16
Source: Thomson Reuters Datastream, LBMA
running at 2.4% (annualized)
for many months – November
being no exception.
But forget these arguments;
the Fed will hike in December
and the FF futures market has
more or less priced it in. Which
makes the rally in gold today
all the more interesting! The
gold market is either seeing
“inflation” that we do not see,
or both it and the dollar have
flipped into “sell/buy on rumor,
buy/sell on news” mode! (We
did not expect gold to “flip” into
“buy on news” mode until much
closer to December 16, but this
market has been very difficult to
read of late!)
Staying with the Fed a
moment, the issue now is how
rapidly interest rates will be
hiked after liftoff on December
16. History indicates that the
Fed typically tightens policy in
relatively quick steps, more or
less at every meeting. Our view
is that such will not happen this
time around; the Fed will go to
great lengths – it already has –
to explain why this cycle will not
be typical. (Most readers may
not be interested in “the neutral
nominal FF rate” of which
Yellen spoke this week in her
address to the Economic Club
in Washington DC. But the long
and short of some of the Fed’s
academic analysis is that rates
do not need to rise significantly
to get to a “neutral” policy level.)
And lest we forget, the dollar
remains a huge headwind for
the US economy, it retards
non-residential investment, net
exports, and the inflation rate.
Indeed, if the Fed does not hike
the FF rate in 2016, after liftoff
on December 16, it will almost
certainly be because of the
strength of the US dollar. (A few
observers have forecast that the
Fed will have to reverse itself in
2016, and introduce QE4, but
most observers call for 2-3 more
hikes in 2016.)
Because we are so dollarfocused of late (the US dollar
will be a key discussion point in
my presentation at the “China
Gold Summit” in Shanghai
next week – http://www.
chinagoldsummit.com), we have
included some charts of the
US trade balances herewith,
updated through October as
per this morning’s trade data
release. We continue to believe
that the dollar is seriously
overvalued. Were it not for
the growth of the US shale-oil
industry in recent years, which
reduced very significantly US
oil imports (a trend now likely to
end on the back of $40 oil), the
US Congress and US Treasury
might currently be pushing a
little harder (politically) to have
the US dollar devalued.
There is absolutely no need
for the euro, yen and RMB
to decline further against the
dollar; indeed, Europe, Japan,
and China should be told to
solve their structural problems
(typified by a lack of domestic
demand relative to domestic
supply) in ways that do not
directly rely on the appetites of
US consumers.
DUNDEE ECONOMICS Page 2
-40
-400
-50
-500
-60
-600
-70
-80
Gold Monitor
-90
-700
Monthly Trade Balance Goods
12 mo moving total Goods
bn$
Last date: October 2015
12 mo. moving total, bn$
-800
12/04/15
-900
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: US Census Bureau
US Trade Balance With Canada
2
US Trade Balance With World
15
-6
-40
-1
0
00
-2
-10
-100
-15
-3
-200 -20
-4
-30
-300 -30
-5
-45 -40
-400
-6
-50
-8
-500
-7
-60 -50
0
-10
-2
-20
-4
-30
-60
-10
-70
-12
-80
bn$
Monthly Trade Balance Goods
Last date: October 2015
12 mo moving total Goods
12 mo. moving total, bn$
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Last date: October 2015
bn$
12 mo. moving total, bn$
-90 Source: US Census Bureau
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: US Census Bureau
US Trade Balance With China
0
US Trade Balance With World
-5
0
US Trade Balance With Japan
0
-8
-600 -60
-75
-9
-700 -70
-90 -10
-800 -80
US Trade Balance With World
0
-10
-20
-30
-40
-50
-60
-70
-80
Petroleum Balance
Non-Petroleum Balance
Last date: October 2015
bn$
12 mo. moving total, bn$
-90
-100
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Last
11 date:
12 October
13 14 2015
15
bn$
-900 -90 Source: US Census Bureau
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: US Census Bureau
0
US Trade Balance With European Union
0
-50
0
-3
-30
-6
-60
-30
-20
-200 -9
-90
-40
-25
-250
-10
-10
-100
-20
-15
-150
-50
-30
-60
-35
-70
-40
-80
Petroleum Balance
Non-Petroleum Balance
Last date: October 2015
bn$
-350
12 mo. moving total, bn$
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Last date: October 2015
bn$
-90 Source: US Census Bureau
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: US Census Bureau
The 10 largest
US Trade Deficits
2015 through October
$ Billions
1
2
3
4
5
6
7
8
9
10
China
Germany
Japan
Mexico
Vietnam
Ireland
South Korea
Italy
India
Malaysia
-12
-120
-15
-150
-300
306.55
61.43
56.36
48.61
26.05
24.32
23.97
22.86
20.05
17.73
-400 -18
bn$
Last date: October 2015
12 mo. moving total, bn$
-180
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: US Census Bureau
The US trade deficit with the world
is large ($750 billion) and rising.
The reason the deficit hasn’t risen
more dramatically in recent years
is because oil imports have been
replaced with domestic production,
a development that should come to
an end with $40 oil!
With the exception of Mexico, the
largest US trade deficits are with
countries in Europe and Asia!
Source: US Census Bureau, Thomson Reuters Datastream, Dundee Economics
DUNDEE ECONOMICS Page 3
12/04/15
Gold Monitor
COPPER
475
450
425
400
375
350
325
300
275
250
225
200
10
550
11
12
13
14
SPOT OIL PRICES
130
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
US cents/lb
15
GOLD IN COPPER
30
28
500
3000
2500
2000
1500
US$/bbl
11
12
13
14
15
16
GOLD IN OIL
11
12
13
16
16
Average since
1980: 62.2
45
12
15
15
50
14
14
14
55
40
Brent
10
10
13
60
16
250
12
65
18
300
11
GOLD IN SILVER
70
20
Average
since
1980: 401.0
US cents/oz
10
75
Average NY
Crude/Gold
since 1983: 15.9
22
350
1000
80
Barrels of oil/oz. of gold
24
400
4500
3500
26
450
SILVER
5000
4000
10
16
Pounds of copper/oz. of gold
NY oil
Brent oil
35
NY Crude
8
10
11
12
13
14
15
16
30
Ounces of silver per ounce of gold
10
11
12
13
14
15
16
Source: WSJ, Thomson Reuters Datastream, Dundee Economics
Gold is down against dollar-denominated financial assets, but not
against other commodities.
In short, overvaluation of the
dollar is a key bullish gold factor
in our outlook. The problem
however is that the probabilities
favor the continuation of a
strong dollar in 2016. Has
anyone noticed that the RMB
has drifted lower over the month
of November, from 6.35/$ to
6.40/$, despite recent news
that the RMB will be included in
the SDR basket next October?
Only Draghi’s profound policy
disappointment (“we’ll do
whatever it takes … but not just
yet” was the ECB’s message
yesterday) allowed the dollar
to drop a little against the euro
in recent hours. Few observers
think the dollar will do other than
rise against the euro in 2016,
however.
Meanwhile, at current gold
prices Asian demand appears
insatiable. What gold investors
in the West do not want to take
up, Asia literally gobbles up.
(Maybe I too will pick up a little
gold in Shanghai next week;
it’s always a pleasure to buy
gold jewelry by weight, and the
current price is very attractive.)
Gold Watch
1. China gets a “gold star”,
noted Bernanke in one of his
blogs this week (Brookings:
Ben Bernanke’s Blog, 12/01).
China did a good job on
its homework and the IMF
rewarded it with inclusion in the
SDR basket. “SDR inclusion
does not mean, however, that
the renminbi will rival the dollar
as an international currency, at
least not any time soon … The
dollar’s global status is a market
outcome, not the result of a
decision by any international
body or of an international
agreement … Private investors
and governments freely choose
to hold dollars because the
markets for dollar- denominated
DUNDEE ECONOMICS Page 4
12/04/15
Gold Monitor
Gold vs US 10-year Tips
Has gold now declined too much?
-1.0
2000
1800
10-year TIPS
(Axis Inverted)
1600
1400
-0.5
0.0
0.5
GOLD PPRICE
1200
1.0
1000
1.5
800
2.0
600
2.5
400
3.0
200
Weekly Data, Last Date: December 4, 2015
03
04
05
06
07
08
09
10
11
12
13
14
15
16
3.5
Source: Federal Reserve, LBMA, Dundee Economics
140
Gold (% - change) vs US 10-year Tips
| DUNDEE ECONOMICS
Gold has clearly declined more than TIPS would indicate
-1.4
75
GOLD
% year-on-year
60
-0.7
45
0.0
30
0.7
10-year TIPS
15
(Axis Inverted)
1.4
0
2.1
-15
2.8
-30
Weekly Data, Last Date: December 4, 2015
03
04
05
06
07
08
09
10
11
12
13
14
15
16
3.5
Source: Federal Reserve, LBMA, Dundee Economics
We track gold against real interest rates (and other variables
too, of course). The top chart indicates gold has fallen much
too far relative to TIPS (Treasury Inflation Protected Securities).
The bottom chart indicates gold declined long before the 10year TIPS suggested it should.
We continue to think the US dollar is the key variable for gold!
141
| DUNDEE ECONOMICS
DUNDEE ECONOMICS Page 5
12/04/15
Gold Monitor
assets are, by far, the deepest
and most liquid of any currency;
because the United States
imposes no restrictions on
capital flows in or out of the
country; because of the quality
of U.S. financial regulation;
because the Federal Reserve
has kept inflation low and stable
for the past thirty years; and
because the United States is
large, prosperous, and politically
stable.” (This reads like
something I wrote, see the Gold
1900
Monitor dated November 20,
only better worded with more
authority!)
2. All the gold forecasts that
came across my desk this week
were negative: “Prices to drop
below $1000 – Natixis” (Kitco.
com, 12/03); “Expect gold to
fall to $900 in 2016 – ABN
Amro”, (Kitco.com, 12/02); “Citi
Research sees softer gold in
2016”, (Kitco.com, 12/01). Lest
the reader blame Kitco.com,
one of our favorite sites, be
assured that the site also gives
play to more bullish forecasts.
My assistant just didn’t see any
bullish forecasts this week!
3. We think the oil price can
rise in the short term only on
the back of supply cutbacks
(or supply destruction – the
probability of which is not
zero given all the bombs
dropping in the Middle East).
OPEC appears unable to get
it together however, the last
we have read. The Vienna
THE SHORT-TERM TECHNICAL PICTURE
Daily p.m. fix
1800
Today’s bounce in
the gold price ...
50-day moving
average
1700
1600
1500
1400
$1385
$1340
$1296
200-day
moving average
1300
1200
1100
1000
$1192
$1142
$1081
$1055
Last date: December 4, 2015
2011
2012
2013
Source: LBMA, Dundee Economics
1400
1350
2000
1900
1300
1800
1700
1250
1600
1500
1200
1400
1300
1150
1200
1100
1100
1000
900
1050
800
700
600
2014
2015
... when data more
or less assured the
Fed will hike ...
THE SHORT-SHORT TERM TECHNICAL PICTURE
$1385
THE SHORT TERM TECHNICAL PICTURE
$1340
Daily p.m. fix
$1296
200-day
moving average
50-day moving
average
$1192
$1142
$1142
$1058
$1081
$1055
$ 870
Daily p.m. fix
Last date: December 4, 2015
2015
2014
Source: LBMA, Dundee Economics
Last date: December 4, 2015
2008
2009
2010
Source: LBMA, Dundee Economics
2011
2012
2013
2014
2015
... provides some
hope there may be
a “buy on news”
gold rally in coming
days/weeks.
$ 712
DUNDEE ECONOMICS Page 6
12/04/15
Gold Monitor
CHANGE IN GOLD ETF’S
60
5-day sum of daily change
tonnes
40
There were some
significant sales
from the ETF sector
earlier this week ...
20
0
-20
-40
2015 : -128 T to date
2014 : -164 T
-60
-80
Daily starting January 2013
Last date: December 3, 2015
2013: -869 T
-100
2013
2014
Source: Bloomberg
COMMITMENTS OF TRADERS DATA
600
“Specs” net long*
400
Gold price
(% Q/Q)
GOLD AND SILVER ETF’s
500
24000
2015
tonnes
tonnes
18000
300
4000
0
-16
12000
2000
-24
100
Last date: December 1, 2015
60000
2013
0
8
3000
-8
ETF-Silver
Total
200
16
2014
2015
Source: US Commodity Futures Trading Commission
*Futures Contracts: in tonnes-equivalent
2007
2008
2009
2010
2011
Source: ExchangeTradedGold.com,
Bloomberg
Conference
just ended “agreed
that Member Countries should
Gold Price 9
continue
to closely monitor
developments in the coming
months”, (OPEC.org, 12/04).
4. We ran some statistical
test on whether gold leads or
lags gold equities. The tests
support gold leading equities,
not equities leading gold.
5. Risk Ranges: Narrow
$1025-$1125, Wide $1000-
ETF-Gold
Total
Last date: December 3, 2015
2012
2013
2014
2015
... but the very low
net long “spec”
position (lowest
since October,
2002) suggests
there is room for
some speculative
buying!
1000
-32
0
$1150. Our risk ranges have
been altered ever so slightly this
week. Speculation over when
the Fed will hike interest rates is
subsiding, which may ironically
have given the gold price a
lift. There was a significant
decline in ETF holdings this last
week, but the net-long “spec”
position in the futures market
(COMEX) is now so low – the
equivalent of only 30 tonnes,
the lowest net-long position
since October 2002 – that one
might reasonably expect a
sudden increase in the spec
net-long position. Our near-term
price bias has improved slightly,
to neutral this week; we think
the pre-December 16 “sell-off” is
behind us; the market must now
have fully discounted a Fed hike
in December. Indeed, will the
“buy on news” half kick in one of
these days!?
DUNDEE ECONOMICS Page 7
12/04/15
Gold Monitor
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
GOLD AND THE DOLLAR – DAILY DATA
US Dollar Index (NEFXR0)
Gold
Jan 1999=100
Axis inverted
Corr: -.29
Corr: -.83
to date
Corr: -.80
Last date: December 4, 2015
2011
2012
Corr: -.58
Corr: -0.82
2013
2014
2015
2000
1925
1850
1775
1700
1625
1550
1475
1400
1325
1250
1175
1100
1025
950
89
Last date: December 4
Gold
1225
90
1200
91
1175
92
1150
93
1125
94
1100
100
Last date: December 4
Gold
102
104
106
95
96
1075
NEFXR0
(axis inverted)
Jun-01
Aug-24
Nov-16
1050
108
110
EFXR0C
112
(axis inverted)
Jun-01 Aug-24 Nov-16
(NEFXR0 - US$ index includes: Cdn$, Euro, Yen, Pound, Yuan, Swiss, Aus$, Rupee)
Source: WSJ, Thomson Reuters Datastream, Dundee Economics
Some dollar weakness undoubtedly helped gold today!
GOLD AND THE DOLLAR – DAILY DATA
74
Last date: December 4, 2015
78
82
Corr: -.85
86
Gold
Corr: -.62
to date
2000
1900
1800
1700
75
1600
80
94
1500
85
98
1400
102
1300
110
114
US Dollar Index (EFXR0C)
1200
(axis inverted)
Corr: -.71
2011
Corr: -.54
2012
Corr: -.59
2013
(EFXR0C - US$ index includes: Euro, Yen, Pound)
Currencies 4
2014
2015
Last date:
70
90
106
GOLD AND THE DOLLAR –
65
90
95
1100
100
1000
105
US Dollar Index
(EFXR0)
(axis inverted)
Corr: -.24
2011
Corr: -.76
Corr: -.77
2012
2013
(EFXR0 - US$ index includes: Cdn$, Euro, Yen, P
Currencies 5
The author(s) is an economist with Dundee Global Investment Management Inc. (“Dundee”). The author(s) is not a research analyst or an investment
advisor. Affiliates of Dundee, may have an investment banking, financial advisory or other relationships with some or all of the issuers mentioned herein
and may trade in any of the securities mentioned herein, either for their own account or for the accounts of their customers, or provide advice in respect of
or conduct research on such securities. Although distributed by Dundee Securities Ltd. (“DSL”), the author is not a DSL research analyst and this is not
a DSL research report.
The comments in this report are solely those of the author. The information contained in this report (including any opinions or opinions and estimates)
is current as of the date of publication and has been prepared from publicly available information, internally developed data and other sources believed
to be reliable, but that have not been independently verified. The information in this report is subject to change without notice and is provided in good
faith but without legal responsibility. The views expressed should not be considered a recommendation to buy or sell nor should they be relied upon as
investment advice. No representation or warranty is made regarding the use or the results of the information contained herein in terms of its completeness,
correctness, accuracy, timeliness, reliability, or otherwise, and neither Dundee nor its affiliates, including DSL, accept any responsibility for any loss or
damage that results from such use.
© Dundee Global Investment Management Inc. Any reproduction or distribution in whole or in part of this research report without permission is prohibited.
DUNDEE ECONOMICS Page 8