Gold Soars!

* Save havens are getting bought today.
* Yellen leaves us all scratching our heads!
* Riksbank got deeper with negative rates!
* Oil plunges to $26!

And now. Today’s A Pfennig For Your Thoughts.

Good Day. And a Tub Thumpin’ Thursday to you! Negative rates go deeper, will they ever come ashore here in the U.S.? I wouldn’t put anything past the Fed in their attempt to revive the economy. Todd Rundgren greets me this morning with his song: I Saw the Light. it’s “one of those mornings” for me. I’m kind of hoping that the fog will lift as the sun rises.. So, if I forget to complete a thought, or anything like that you’ll know I didn’t really mean to do that! HA!

Well. She came, she conquered, she left. But. She’ll return today for an encore performance. Yesterday, I told you about the 2 scenarios that I thought were before Janet Yellen, and guess what? She borrowed from both! Now that’s an economist for you. A two handed economist. You know they say “on one hand this could happen, and on the other hand this could happen”. She was all over the board yesterday, but in the end, she said nothing about stopping the rate hikes, instead choosing her words carefully, said that the Fed would continue to hike rates gradually. Hmmm, does that mean the rate hike for March is still on the table? Does gradually mean 4 more rate hikes in 2016? Or does it mean no more rate hikes until 2017? Gradually. taking place, changing, moving, etc., by small degrees or little by little.

So, if that’s the definition of “gradually”, we can safely come to the conclusion that we still don’t know anything! For the record, I put down for all to read, late last year, that since the Fed had “broken the seal” on the rate hikes that they would go further with their rate hikes in March and June, and have a “Oh, No, what did we do” But there was none of that to be seen or heard in yesterday’s testimony by Yellen. There were some comments about the market turmoil, and so on, but I think she was just trying to throw the markets off the scent of what she was really saying. Which was. Oh, I give up! I really can’t say what her overall goal was yesterday, except to leave us all scratching our collective heads. But what I do know, is that I didn’t hear what I wanted to hear.

The geopolitical risk meter is flashing at us this morning, and trying to tell us something by having the safe haven assets on the rally tracks. Dollars, yen, euros, francs, Gold and U.S. Treasuries are all firmly on the rally tracks. The euro rose past 1.13 yesterday, and remains well bid above that figure this morning. Gold is up $26 this morning. That’s right, I said $26! And the 10-year U.S. Treasury yield has fallen to 1.63%… I shake my head at this level for a 10-year bond. But at least in the largest bond market in the world, you can still carve out some yield, no much obviously, but some yield, while the rest of the world is dealing with crumbs. and some are dealing with negative rates.

Speaking of negative rates. Sweden’s Riksbank surprised the 50% of the 50/50 that didn’t think the Riksbank would move rates, at their meeting this morning. Recall, that I told you a couple of days ago, that I wouldn’t put it past the Riksbank to move rates deeper into negative territory, and that’s exactly what they decided to do, pushing their key rate to negative – 0.5%, from -0.35%… the krona is getting whacked for that move, as well it should! The Riksbank also had some tidbits to say, regarding their ability to use all the tools in their tool box to introduce inflation into the Swedish economy, and keep the krona from appreciating. Here’s my thought for the Riksbank. You’re out of new arrows in your quiver, and all you have left are old, used, and worn arrows. You know, the ones you’ve used before, that didn’t work? You’re out of new arrows boys. So, quit with the tough talk about using everything in your toolbox. You have nothing, nada, zilch, zero, to help your economy in that toolbox.

So, what lit the fire under Gold? Yesterday, I told you about how $1,200 seemed to be a roadblock for the shiny metal, and wondered how many times traders would attempt to overtake the $1,200 figure.. But that’s all in the memory banks now, as Gold has soared past $1,200. I stopped what I was doing yesterday to log back into the currency screens to see how Gold has reacted to Yellen’s testimony, only to find the shiny metal not in any mood to move higher. But it sure has changed its mind overnight! You know, this is where, I say something to the tune of fear of another global financial meltdown is gaining hold of the markets. Look at the safe havens. Japanese yen, which should be trading above 125, has a 111 handle this morning! And I just can’t get over that yield on the 10-year Treasury. 1.63%…

The price of Oil has plunged once again, and this time to a $26 handle.. OUCH! I read a report on the MarketWatch this morning that talked about how the cheap price of Oil was going to bankrupt countries like Saudi Arabia and Russia. They contend that even the Saudis can’t deal with $20 Oil, which is where they feel the next stopping point for the price of Oil will be.

Also helping the price of Gold rise higher this morning is the latest report from the World Gold Council (WGC) who noted that Gold’s largest customers, China, India, and Russia will all be adding to their stockpiles of physical Gold this year, and then went out of their way to make mention of the Global stock market turmoil, and how that should be enough to Gold demand strong this year. The WGC is good at telling us the obvious stuff, but sometimes they have something for us that’s new. And here’s the something new from the WGC. “Demand for bars and coins in China, the largest single market, jumped 25% in the 4th QTR from a year earlier, and was up 21% for the year, with currency weakness the main driver.”

Well, I would say that’s all fine and good, but the main currency that Gold is concerned about is the dollar.

Yesterday morning, the risk meter wasn’t flashing a warning signal, and that helped the Aussie and New Zealand dollars, respectively, but today is a different story, and that doesn’t bode well for the currencies of these two countries. Initially, after the Yellen testimony yesterday, the markets felt that Yellen had given them a “bat signal” and that rates would be delayed. This thinking, got the Aussie dollar (A$) and New Zealand dollar/ kiwi both excited. But that euphoria was quickly eliminated. And for today, both currencies are sitting with losses VS the green/ peachback dollar.

It’s difficult for me to have to say this, but the Japanese yen is the best performing currency since yesterday morning, except for Gold that is! Bank of Japan (BOJ) Gov. Kuroda has to be tossing and turning all night. I can hear him singing the Bobby Lewis song from 1961. I kicked the blankets on the floor, Turned my pillow upside down, I never, never did before, because I was tossing and turning, turning and tossing, tossing and turning all night! OK, getting back to yen. This could become a real tug-o-war between currency traders and the BOJ. I’ve always told you that the markets have deeper pockets than any one Central Bank, but that doesn’t mean the BOJ, and Kuroda won’t go down fighting! Then we’ll really have some perverted currency markets, folks. Countries that have done just about everything to weaken their respective currency, are seeing their efforts wasted, as the safe havens kick in, and countries that have strong fundamentals and should have stronger currencies are seeing that scenario being turned around.

A currency that I don’t talk about much, the Mexican peso, has really lost a lot of ground to the dollar in the past year, losing more than 21% in the last 12-months. I’ve long said that the peso needs to have a high interest rates, a risk premium if you will, to help protect it against not just slides like this, but also the memory of past indiscretions the Mexican Gov’t took with foreign investments. A lot of people believed that once the U.S. Fed started hiking rates, that Mexico would follow lock-step with the Fed. But that didn’t happen, and it won’t either. Anyone for a trip to Cancun? Mexican pesos exchange rate is your friend, even though the water might not be! HA!

Still no economic data to speak of from the U.S. Data Cupboard today, although we will see the Weekly Initial Jobless Claims, that used to be important to the markets, but has now seen the markets move on to some other data. January Retail Sales tomorrow, to end the week. and what a long week it has been so far! Next Monday is the Presidents Day Holiday, so a 3-day Holiday weekend for the U.S. I told you a few days ago, that China is on holiday all week for their Lunar Year Celebration. A 3-day weekend used to sound pretty good to us here in the U.S. but when we found out about how long these Chinese celebrations last, we wanted more. HA!

To recap. Janet Yellen left the markets with questions yesterday, like what did she mean by “gradually”, and other tidbits that really had me confused. But what I do know is that she showed no rate hike remorse at this time, but in my humble opinion, she will eventually. Sweden’s Riksbank cut rates further/ deeper into negative territory to -0.50%, and tried to rattle their saber regarding their fight to get inflation and keep the krona from getting strong, and Chuck called them out on their tough talk. Gold was up $26 when I began to write the letter today, but as I get ready to head to the Big Finish it is up $41!!!!!

Before I head to the Big Finish today. Well, baseball started yesterday. yes, that’s right! Well, sort of. In Australia, the countries of: Australia, New Zealand, South Africa, and the Philippines are playing a tournament and the winner qualifies for this spring’s World Baseball Classic. As a baseball fan, I love that the countries of the world that do play baseball get to compete with each other in a format that bumps up against Spring Training. But as a Cardinals fan, I don’t like the timing of this thing, never have, and never will. the players that play for the Cardinals, that are from another country, leave Spring Training, and play for their country. I think that’s great for them, but. like I said, as a Cardinals fan, I don’t like the timing.

For What It’s Worth. Well, believe it or don’t. But I don’t have anything here for you today. I’ve seen lots of stuff on the Fed, but most of it gets downright nasty and ugly with what they say and I don’t need that aggravation, especially on a day when the fog hasn’t lifted yet.. I was all prepared to further our discussion about the credit expansion falling apart this year, but we had “technical problems”. so, I wanted to at least tell you that 3 of the top 5 economies in the world, have seen their credit expansion “roll over” , which means stop expanding, with only the U.S. and China still expanding. And if and when they “roll-over” things could get quite ugly.

Currencies today 2/11/16.American Style: A$ .7050, kiwi .6660, C$ .7150, euro 1.1335, sterling 1.4410, Swiss $1.0270, . European Style: rand 15.8990, krone 8.5605, SEK 8.3885, forint 275.75, zloty 3.9350, koruna 23.9180, RUB 79.58, yen 111.90, sing 1.3910, HKD 7.7915, INR 68.29, China 6.5314, pesos 19.13, BRL 3.9533, Dollar Index 95.47, Oil $26.71, 10-year 1.63%, Silver $15.59, Platinum $944.47, Palladium $526.03, and let’s hear it for Gold today. $1,235.00

That’s it for today. Well, it’s an infusion day for me. I hope they can find a vein more easily than they did 2 weeks ago, when they used me as a pin cushion! OUCH! It’s supposed to get warmer today with full sun, of course! I’ll be spending 2.5 hours inside the infusion center! UGH! The days are winding down until Valentine’s Day folks. don’t wait until the last minute! And Pitchers and Catchers report next week, and it all begins anew once again. Yes, takes us to the finish line today with their great song: Roundabout. Remember their keyboardist? Rick Wakeman, he had like 50 keyboards he played! I exaggerate, but it was a lot! There’s the sun!… OK, here’s my morning ritual down here.. I write the Pfennig, and the send it to the reviewers, while it’s there, I take my cup of coffee out to the deck to watch the sunrise over the ocean. Some days it’s chilly out there, but it doesn’t bother me! I finish my cup of coffee, and come back inside, to see that I’ve gotten the OKto send, and then it shows up in your email box! So, I’m getting ready to “go to the deck”. I hope you have a Tub Thumpin’ Thursday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts