April 2017 - Week 3 Edition

Gold and Trump’s Popularity Rising

Gold rose another $35 last week, mostly due to the escalation of hostilities in Syria, Afghanistan and North Korea.  At the same time, stocks declined 1.5% in the first half of April, so gold and silver are now far ahead of stocks for 2017. To date, silver is up 14.3%, gold is up 12.1% vs. just 3.5% for the Dow Jones index and 4.0% for the S&P 500.  Gold reached $1,295 in overseas trading over the weekend, but it has yet to close over $1,290. With gold comfortably above its 200-day moving average of $1,255, a leading German bank (Commerzbank) is pointing to $1,291 as a key technical resistance level.  Once $1,291 is cleared, the next resistance levels, they say, will be at $1,338 and $1,375 per ounce.

We’re seeing a recovery of gold demand in India and China after a lackluster year of demand in 2016. Last year at this time, there was a gold jeweler’s strike during March and April, so it should come as no surprise that Bloomberg reported that India’s Finance Ministry said gold imports to India rose by 582% in March 2017 as jewelers built up their inventories of gold for the start of the wedding season (April) and the auspicious gold-buying Hindu holy day, Akshaya Tritiya, which falls on Friday, April 28 this year. 

Another factor limiting gold demand late last year (and early 2017) was the Indian government’s demonetization of 500 and 1,000 rupee notes (worth only $7 and $14, respectively) to stop gold trading in the underground (cash) market.  Mehul Choksi, chairman of a leading jewelry store chain in Mumbai (Bombay), said “Imports were down till January due to demonetization, so now people are re-stocking.”

In China, there was a similar monetary crisis early last year, with the crash of the two main Chinese stock markets in Shanghai and Shenzhen during January 2016.  As a result of that market crash, many rich Chinese investors pulled their money out of the stock market and opted for the safety and privacy of gold.  A recent report, “Gold Focus 2017” showed that private gold investment in China rose strongly in 2017, due mostly to demand from wealthy households, professional investors and family-owned businesses.

Turning to Europe, the upcoming French election on Sunday (April 23) will tell the world a lot about the future of the European Union.  If the nationalist candidate Marine Le Pen wins in the runoff scheduled for May 7 (if no single candidate wins a majority of the vote on April 23), then the dissolution of the EU and the euro currency should send far more European investors into the stability, safety and privacy of gold.  After all, many European interest rates are still below zero – like the two-year German Treasury note, yielding -0.86 – so European investors can actually say that “gold yields MORE than German bonds!”

Last week, Juan Carlos Artigas, director of investment research at the World Gold Council, said, “We think there is still quite a bit of appetite in Europe…. investors are taking a strategic approach and see value in holding a core position in gold.” We saw last year that European gold demand surged before and after the Brexit vote on June 23, and demand is now rising in advance of the French vote, followed by a German vote in September.  “Because of everything that has happened in Europe, investors are a little more sensitive to risk and see gold as an important diversification in their portfolio,” said Artigas.

Donald Trump Successfully Channels His “Inner Huey P. Long”

During the 2016 campaign, candidate Donald Trump won a lot of laughs from his fans – and derision from the media – for calling his opponents demeaning names, like “crooked Hillary” or “little Marco” or “Lyin’ Ted.”  Once in office, he didn’t stop, calling NBC’s “Meet the Press” host Chuck “sleepy eyes” Todd.  I had coffee with Chuck Todd recently and you can read about that in last week’s reports.

Trump’s recent name-calling tactic isn’t new.  My mother taught 8^th grade Louisiana State history when I was growing up in Lake Charles, Louisiana.  She told me about the successful campaigns of Louisiana’s populist governor Huey P. Long, who was very much in the Trump tradition of throwing “red meat” comments out to voters.  Some of Huey Long’s favorite nicknames for his political opponents included T.S. “Turkey Head” Walmsley, Charles “Whistle Britches” Rightor, Esmond “Shinola” Phelps and Senator Joseph “Feather Duster” Ransdell, among others.

New Orleans Mayor T. Semmes Walmsley had a beak-like nose, bald pate and loose chin skin that were impossible to ignore, so Huey Long called him “Turkey Head” Walmsley. Charles Rightor, a Louisiana state legislator, suffered from intestinal distress (flatulence!), so Long reminded voters to keep their ears open for two types of long-winded noise emitted by his political opponent.  Teaching this comic angle on American history is one way to guarantee that 8^th grade boys will remember what the teacher says!

Metals Market Report Archive >