The Mess That Greenspan Made - Part 21

The U.S. dollar has become about the only thing that matters for precious metals these days as, along with the rest of the natural resource sector, gold and silver are being pummeled by investors and traders with each move higher for the dollar. This is consistent with the well established inverse correlation between these asset classes and, absent a substantive change in course for the dollar, it’s hard to see how precious metals can rebound.

Gold and SilverThe Federal Reserve policy committee gathers this week and it is possible that the central bank could present a more dovish stance than expected.

This could bolster the metals market and commodity prices in general, as could renewed safe haven demand arising from U.S. military action in the Middle East or a buying surge in Asia at the beginning of a seasonally strong time of the year. But, for the time being at least, the dollar is in charge.

The gold price saw its biggest weekly decline since a drop of 3.6 percent in late-May and it now sits at its lowest level since early-January. This comes after the trade-weighted dollar strengthened for the ninth consecutive week, rising to a six-year high against the Japanese yen in the process. Given the surge in the dollar and gold’s response as shown below, it seems it could have been much worse for the yellow metal in recent weeks.

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Monday Morning Links

China anxiety knocks shares, oil – Reuters
Why we are forever blowing bubbles – China Daily
China August industrial growth hits 6-year low – MarketWatch
Why the Scottish Vote Is Shaking Up Europe – Politico
Why ‘Bravehearted’ Scots Will Vote for Independence – Fiscal Times
Scottish independence: Campaign leaders stress vote will stand – BBC
Diminishing Deficit Delusion: National Debt Soared By $1T In Last Year – Contra Corner
Will the FOMC remove “considerable time” language from its statement? – Sober Look
Investors tell Fed: don’t fumble interest rates – CNN/Money
Will the Fed Avoid a “Language Tantrum?” – Bloomberg
1937 parallels for today’s global economy – Guardian
King Dollar and the Peripheries – Noland, Prudent Bear
A Warning from Graham and Dodd – Hussman Funds

Global stocks down after weak China data – AP
Rising rates pose headwind for stocks – USA Today
A Closer Look: Market Cap – Alhambra Partners
Stock bull-bear line blurred by pending Fed action – MarketWatch
Record S&P 500 Masks 47% of Nasdaq Mired in Bear Market – Bloomberg
How to Preserve Capital During a Bear Market – Wealth of Common Sense
What You Need to Know about Next Week’s 3 Key Events – Marc to Market
Treasuries Are Little Changed Before Inflation Report, Fed Meet – Bloomberg
Gold rebounds on weak shares, but near 8-month low as Fed in focus – Reuters
Gold Industry Needs ‘Cleansing’ of Weakest, Fidelity Says – Businessweek
Pain for gold, silver price as hedge fund slash bullish bets –

The roughed-up American – Washington Post
Pessimism about U.S. growth rates – Econbrowser
Not all the oars of the economy are rowing equally hard – MarketWatch
OECD Trims Developed World Growth Forecast as Risks Build – Bloomberg
Almost Half of Wealthy Chinese Want to Leave, Study Shows – WSJ
Bad Loans Could Be Disastrous for China – Bloomberg
House price cuts point to a shift in Southland market – LA Times
The Entire Housing Market Hit A Wall In August – SRSrocco Report
California Home Sales Dive, Prices Hit Wall, Millennials Blamed – Wolf Street
Draghi’s $3.9 Trillion Ambition Seen Stretched in Survey – Bloomberg
How Does Janet Yellen Spend Her Time? – WSJ
The Fed: On course and on the money – CNBC


The Weekend Update is Now Available

The latest issue of the Iacono Research Weekend Update has been posted to the website and is now available for subscribers here.

There will be no changes to the model portfolio or the buy ratings this week, but the prospects for the week ahead are outlined in the following discussion topic:

The executive summary is as follows:

The threat of interest rates rising sooner rather than later due to an improving economy combined with a strengthening U.S. dollar to pressure almost every asset class, stocks and bonds once again moving in the same direction, this time lower. Dismal economic reports came from Japan, Europe continues to struggle, and the U.S. expanded its military role in the Middle East to combat Islamic extremists.

Energy prices fell to their lowest levels of the year and the rest of the natural resource sector followed along, adding to recent deflation concerns amongst central bankers. Emerging market shares tumbled and REITs also moved sharply lower as the model portfolio fell 2.1 percent, now up 6.0 percent for the year.

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August Retail Sales Rose Broadly

The Commerce Department reported(.pdf) that retail sales rose broadly last month, up 0.6 percent in August following an upwardly revised increase of 0.3 percent in July. Excluding autos, sales rose 0.3 percent during each of the last two months and, excluding both autos and gasoline, sales increased 0.5 percent last month after a gain of 0.3 percent in July.

So-called core retail sales, excluding autos, gasoline, building materials, and food service rose 0.4 percent during both July and August, this figure being important because it feeds directly into the calculation of Gross Domestic Product.

Sales gains in dollar terms were led by the auto industry where motor vehicles sales rose 1.5 percent. Building materials & garden equipment sales increased 1.4 percent while the much smaller miscellaneous store retailers category jumped 2.5 percent.

Falling energy prices resulted in gasoline station sales dropping 0.8 percent and general merchandise retailers were the only other major group to post a decline, down 0.1 percent.

On a year-over-year basis, retail sales rose to a 13-month high of 5.0 percent, up sharply from the winter slowdown that saw the annual sales gain dip to as low as 1.6 percent.

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