Will The Demand For Gold Soar?

Good day… And a Tub Thumpin’ Thursday to you! As of right now, I’m in no mood to do any Tub Thumpin’, but I sure hope that changes, given tonight’s activities! Yes, tonight I get to “go out”! And I get to “go out” solo! So, like I said, I sure hope my mood changes, as of right now, I feel like I was beaten up, and kicked out of the car in the woods, and have no idea which direction I should choose… Maybe this song that’s playing to greet me this morning by the Allman Brothers: Blue Sky will bring me around.. The lyrics should at least! Blue Sky You’re my blue sky, you’re my sunny day. Lord, you know it makes me high when you turn your love my way..

Oh! And welcome to June! Pfennig Tradition calls for a song to start June, so here we go… June is busting out all over. All over the meadow and the hill! Buds are busting out of bushes, and the rompin’ river pushes Every little wheel that wheels beside the mill!

I used to kid readers on June 1st with that song’s lyrics and say, “and you thought I was just an old rock-n-roller”, but longtime readers know differently by now…

Well, it’s about time to start talking currencies, metals, economies and dolts… Like me! I was such a dolt yesterday, swallowing something somebody said, hook, line and sinker! And while doing it, realized I was a such a dolt! (must be what a fish thinks after he’s hooked!) Ok, well, at least I don’t have to share my doltness with you this time! The currencies are for the most part a mixed-bag-o-nuts.. the euro took for higher ground yesterday, when Eurozone CPI printed much better than expected… Recall, yesterday I told you that the thought in the markets was that Eurozone CPI would fall to 1% from the 1.7% it printed in March.. But that big fall was not to be, and CPI was 1.4% … I told you yesterday that I thought this was the reason behind the euro’s move to 1.12, and by gosh, by golly, I was bang on!

The euro has held most of its gains from yesterday, as it pushed toward 1.1250, but has seen some profit taking and has settled back in the 1.1230 range… I get the feeling that the euro is about to bust out just like those bushes in the song above! German Central Bank, The Bundesbank, and its President, Weidmann was either greasing the tracks or speaking out of school yesterday, when he mentioned that the European Central Bank (ECB) was starting to debate their position on guidance, in so many words that is.. Central Bankers like to speak where no one fully understands what they are saying, and Weidmann is no different… But that’s what the markets took from the comments, right or wrong…

Well, looky at Canada’s 1st QTR GDP! Now that’s a nice number! 3.7% 1st QTR GDP, with a very healthy 10.3% growth in Business Investment as one of the components of GDP. That’s the largest increase in Business Investment in 5 years! But, there was no time for celebration of the strong number, as the markets were reminded that the 1st QTR wasn’t hurt by the Trade tariffs that were added by the U.S. on Canadian lumber… I guess we’ll have to watch for signs of any slowdown that’s a result of the tariffs… And the Canadian dollar / loonie got sold… The poor loonie just can’t catch a break these days!

I was hoping the loonie could put 100 miles of desert between it and the housing bubble in Toronto and Vancouver… But that’s not to be, and the real reason for the loonie not being able to rally on good news like a strong 1st QTR GDP, is that the price of Oil, and many of the raw materials/ commodities that Canada has at its disposal for exports, are weaker, and not looking like they are in any shape to climb on the rally tracks…

In the U.K. the polls just keep showing the lead for the Conservatives Party, narrowing, and with every new poll that comes out, the pound takes a blow to the midsection… Oooooh, now that’s going to leave a mark! I’ll just say it one more time… I said when PM May announced this upcoming election that she was taking a risk that she didn’t have to… Now, in the end everything might turn out just fine, with the polls being proved wrong once again, but I can guarantee you that right now, there’s a ton of hand wringing and sweat dripping from the brows of PM May, and her entourage!

Well, there was more to the story in China yesterday than just the good solid print of May’s PMI (manufacturing index)… China also announced that they were going to change the way they calculated the fixing price of the renminbi… The deliverable currency used in trade, the CNH rallied to its highest level YTD at 6.7620… There are two prices for Chinese currencies, the renminbi, which is the currency that we’ve always offered to investors that is non-deliverable and is managed in the fixing. And then there’s the CNH price that is deliverable, but not to individual investors at this time. The CNH’s beginnings was to open up the Chinese economy, and China wanted the CNH to be used in the international market to settle trade and financial transactions…

The key difference between the two, in my opinion, is that the renminbi is traded within a band set by the People’s Bank of China (PBOC) and they set the price each day. (apparently that’s going to change though), and the CNH which China has no control over its price… However, there used to be a wide spread between the two, but that wide spread has narrowed quite a bit in recent times.

The idea here, I believe, and could be wrong, is that eventually China would just convert renminbi for CNH, since it’s the deliverable currency, which is why the two prices are narrowing, in my opinion…

There! I hope that clears things up… Clear as mud I hear you saying? I certainly hope not, that’s my best explanation of the differences between the two currencies..

And last night, the CAIXIN PMI, which is different than the Official PMI that the Gov’t prints and was 51.2, unchanged in May, saw its index slip to 49.6.. But… the renminbi was allowed to appreciate, which I believe to be a message that the Chinese Gov’t is sending to the markets, to believe their PMI report and not the CAIXIN PMI…

And the Aussie dollar (A$) took a hit on the CAIXIN report, but that hit was stemmed a bit by a very robust Retail Sales report for Australia in April… The Retail Sales report for April grew at 1% VS March! April’s 1% increase was far better than expected which was around 0.3%.. This is a good starting point for the 2nd QTR data in Australia… And like I said traders tried to sell the A$ on the Chinese data, but were stopped at the border by the broad-based improvement in Aussie Retail Sales…

Kiwi however didn’t have a strong Retail Sales report to help it hold off the traders looking to sell anything associated with China overnight, and kiwi lost the 71-cent handle it so proudly displayed yesterday. But if it got there once, it should be able to get there again, especially after the CAIXIN report begins to shrink in the traders’ rear view mirror..

The price of Oil is just a tad stronger this morning, and still trades with a $48 handle. The Russian ruble is weaker this morning after watching the price of Oil slide from $51 last week to $48 this week. The Brazilian real has been getting hit from two different directions… the price of Oil, and the Political problems… And we already talked about the loonie, which leads me to the Norwegian krone, which is unlike the other Petrol Currencies, in that it gets to rally if the price of Oil slips, as long as the euro is rallying… Get them both, Oil and the euro on the rally tracks, and the krone would be smiling like The Cheshire Cat!

Gold lost $5.80 yesterday to close at $1,268.60… There was some very BIG NEWS that began hitting the internet and news wires yesterday regarding Gold, so do my best to keep it fair and balanced… I don’t want to confuse anyone here, I’m not promoting anything or anyone here, I’m simply trying to point out the demand for physical Gold could go through the roof! And could very well be the thing that knocks the stuffing out of the paper short trades…

The whole article can be found here: https://www.forbes.com/sites/rogeraitken/2017/05/02/dubai-trading-platform-onegram-in-500m-gold-backed-crypto-venture-sharia-compliant/#54f796e1bf56

And basically what the article is talking about is how Dubai is going to begin to issue a Gold backed crypto-currency… I read on one site that the demand for physical Gold could reach 500 to 1,000 tonnes per annum.. Now, take that info and add in what I told you yesterday about how China and Russia were buying the world’s production of Gold, leaving none for investors and jewelers… Now, this strain on production and supplies of Gold isn’t going to happen overnight. As I said above Dubai is going to begin to issue a Gold backed crypto-currency… It’ll be a few months before we begin to see the strains on Gold supplies, and if we just go back to economics 101, we know that this can’t go on forever, and that leads to me the thought that my dad taught me many years ago, that I’ve talked about before, and that is, that: there’s no such thing as a shortage, it’s merely an asset that’s in need of a price adjustment…

Those little tidbits of knowledge that my dad used to throw at me, I soaked them all in, and I’m a perfect example of the saying, that as we grow older our parents get smarter…

The U.S. Data Cupboard is chock-full-o-data today starting with the ADP Employment Report, which gives us an indication of what the Jobs Jamboree has in store for us tomorrow… The markets right now are thinking that the Jobs Jamboree tomorrow will show the number of jobs created in May to be less than 200,000.. Hmmm… OK, back to today’s data… We’ll also see the May ISM (manufacturing index) which the forecasters say will increase in May, and I’m going to go out on a limb and say that I think we’ll see slippage from April’s 54.8.. Construction Spending for April will attempt to reverse the negative -0.2% print in March…

And finally, it’s June 1st! That means this is the day the automakers report their numbers for May… The bogey that the automakers will attempt to reach is 16.8 Million cars sold… I’m of the belief that there’s rot on the automakers’ vines and that it will begin to get exposed today… You may recall me talking about cars, and automakers last month, and how they had begun to head down the road of no returns…

To recap… The currencies are a mixed-bag-o-nuts today. Chuck spends have the morning singing songs, but eventually gets around to talking about the currencies, metals and economies. Eurozone CPI printed better than expected yesterday, and led to the euro bumping higher to the 1.12 level. Canada printed a very strong 1st QTR GDP, but the loonie was unable to celebrate, as the weaker price of Oil continues to be a drag on all the petrol currencies. Gold could be seeing an increase in demand going forward, as Dubai announces that they will issue a Gold backed crypto-currency. And Chuck explains how there is no such thing as a shortage..

For What It’s Worth… Well since today is a BIG DAY for automakers, I thought this article played nicely in the sand with the talk of cars, etc. and can be found here: https://www.bloomberg.com/news/articles/2017-05-30/new-warning-sign-as-fewer-subprime-auto-borrowers-pay-off-early

Or, here’s your snippet: “Fewer subprime borrowers are paying off their auto loans early, a possible sign that consumers with weaker credit scores are struggling more, according to a report by Wells Fargo & Co. researchers.

Borrowers are making fewer extra payments on loans that were bundled into bonds in 2015 and 2016, compared with loans in 2013 and 2014 bonds, according to Wells Fargo analysts led by John McElravey. The data on prepayments may offer another sign that subprime consumers are having more trouble paying their bills, the analysts wrote in a note dated Tuesday. Borrowers are already defaulting on a growing amount of auto debt.

Growth in auto debt since the financial crisis has set off alarm bells on Wall Street and among regulators who are concerned that borrowers may be overburdened and used car prices are falling. Government enforcement officials have expressed concern that lenders may be making loans that borrowers can’t repay, and packaging them into bonds that investors are willing to buy.

Total issuance of subprime auto loan-backed securities rose to $7.1 billion in the first quarter from $5.9 billion in the same quarter last year, according to data compiled by Bloomberg. The growth came even as losses from the debt have risen beyond levels last seen in the aftermath of the 2008 financial crisis.”

Chuck again… Can you believe this stuff? Do we ever learn anything from our mistakes? Granted car loans is not the BEAST that mortgage loans were, but like I always say, where there’s smoke there’s fire, and although car loans might be just a spark, a spark can be the start of a BIG Fire!

Currencies today 6/1/17… American Style: A$ .7405, kiwi .7078, C$ .7408, euro 1.1230, Sterling 1.2852, Swiss $.9698, … European Style: rand 13.0302, krone 8.4520, SEK 8.7140, forint 274.05, zloty 3.7279, koruna 23.4768, RUB 56.64, yen 111.16, sing 1.3852, HKD 7.7920, INR 64.46, China 6.8275, peso 18.61, BRL 3.2505, Dollar Index 97.15, Oil $48.38, 10yr 2.21%, Silver $1,272.65, Platinum $953.75, Palladium $821.25, Gold $1,272.65, and SGE Gold… $1,271.20

That’s it for today.. Well, my beloved Cardinals finally found a way to win a game last night, and go for a split with the Dodgers today. Yeah, a day game at Busch, and I won’t be going… I certainly do a lot of things by myself, but I don’t go to ballgames by myself.. Oh, poor, poor pitiful me! Listen to me whining! What a baby! HA! When the Cardinals get 9 hits in a game, you can get a dozen original glazed Krispy Kreme doughnuts for $3.99… They’ve not had to worry about giving away the store this year, that’s for sure! UGH! Little Delaney Grace was here yesterday, and she saw my nameplate on the writing desk, and said, “Charles O. Butler , Jr, you’re a junior, General?” Yes, I am I said, and if we had named Andrew after me, he would have been Charles O. Butler III… She laughed and laughed… June is a significant month for me, as it was in June 2007 that I was first diagnosed with Stage 4 metastatic renal cell cancer… I had some very long and nasty operations in June 2007, and there wasn’t a whole lot of hope by the doctors that I would live much past a couple of years… But here I am, 10 years after! (a great band by the way!) I credit it to the power of prayer, God’s love, an optimistic outlook for not only me but everyone around me, and amazing new drugs… As Ty Keough likes to say, “better living through chemistry”… Ok, enough of that! Smokey Bill Robinson and the Miracles take us to the finish line with their song: Ooo Baby, Baby… Now, please go out and do some Tub Thumpin’ today, and remember to always Be Good To Yourself!

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


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