Is Physical Gold Calling Paper Gold's Bluff?

Good Day. And a Tom Terrific Tuesday to you! Well, hopefully today will bring better news to me than yesterday.. I found out yesterday that one of the doctors has decided that I cannot "travel out of town" , which means, I am not returning to Florida today, I will not join my family there, I will not be sitting at Roger Dean Stadium to watch my beloved Cardinals on my birthday, as was my goal last week, And now I have nowhere to go, nothing to do, and all day to get there! Little Delaney Grace will be devastated to hear that I won't be there for my birthday.. But, it is what it is, and I can't do anything about it, except go against the doctor's decision, and I can tell you that that dog ain't going to hunt! Heartsfield greets me this morning with their song: House of Living.

Now that I've whined enough for two people, we'll get to the markets. I had planned to be on a plane at this time today, heading back to S. Florida to finish out Spring Training, and I had asked Chris Gaffney to write for me today, and he had jotted down some notes, as Pfennig writers do so we don't forget stuff the next morning, and so I'll start out with Chris's notes..

"The dollar was mostly mixed yesterday, recovering a bit vs. the Pound and Euro but falling vs. the commodity currencies. Due to the fall in both the euro and pound sterling, the dollar index finished the day slightly higher, but still within the narrow range it has been trading in since it dropped following last week's FOMC meeting.

The pound sterling was the largest mover on the downside with a wave of selling after PM Theresa May confirmed she is planning on triggering Article 50 on March 29th.

We'll hear from Chris again later in the letter when we get to the U.S. Data Cupboard, but until then, you're stuck with me, Doug Whiner. Yesterday, I told you that the Reserve Bank of Australia's (RBA) meeting minutes would print and I looked for them to be upbeat, which would be good for the Aussie dollar (A$).. Well, for the most part the minutes were upbeat, with the discussion around Global Growth very positive.. The RBA is on hold at this time with regards to rates, and that was quite apparent in the minutes. One of the things that concerns the RBA, and should, as I've said for some time now, is the housing bubble going on and yesterday's data didn't throw any cold water on the housing bubble fears, as House Price Inflation rose sharply in the 4th QTR to 7.7% VS 6.3% consensus. I truly believe that the next move for the RBA is a rate hike, but when is the question, and the RBA doesn't seem to be in any hurry to hike rates at this point. But the A$ did rally, as menti oned above.

This morning, the euro is pushing toward 1.08, as I write.The dollar targeted rally VS euros and sterling yesterday, was reversed overnight, and the Dollar Index has fallen back below 100. There's really not much going on around the world today economics-wise, so I'm going to venture off into some discussions that might seem a little long, but in reading time it's merely minutes! But first, what IS happening today around the world consists of the February CPI report for the U.K. which is expected to breach 2% for the first time since 2013.. And in Canada, they will print their January Retail Sales report, which I expect to be a good one, based on the auto sales reports I've seen.

Here in the U.S. we have some Fed members speaking today.. Dudley is a dove, and a permanent voting member, while George and Mester are hawks, but non-voting members this year. So, what will the Fed members have to say? Will the reinforce the thought that the markets took from the last meeting and rate hike that it was "dovish"? I guess we'll have to wait-n-see.

Before I go on, I just wanted to point out that the Indian rupee continues to fly under the radar, and rally in short moves. I'm going to be getting into the Indian economy and the rupee a little deeper for the April Review & Focus which will be posted the first week of April and can be found here:

The price of Oil recovered a buck in the past 24 hours of trading. But remains below $50, and I don't see the price of Oil recovering much more until the lower price shuts down the U.S. shale producers again.

Well.. Gold gained $3 bucks yesterday, adding to its $2.80 gain on Friday. It's not getting to higher ground quickly is it? But, it is getting to higher ground nonetheless. Jim Rickards wrote about the strange move Gold had last week when the Fed hiked rates, and this was in the 5 Minute Forecast here's Jim Rickards.

"There is more driving the gold price right now than central bank policy and U.S. interest rates. Fundamental supply and demand has entered the picture, with physical shortages being reported from Zurich to Shanghai. As well as strong demand coming from central banks in China, Russia, Central Asia and elsewhere. Individual demand for physical gold remains high in China and India. There's just not enough physical gold to go around.

Normally, an environment like this would bring out the 'paper gold' crowd hitting gold from the short side in the futures markets. Yet leveraged manipulation by shorts is a dangerous game when there is a genuine shortage of physical gold to cover open positions. The physical gold market is calling the paper gold market's bluff." - James Rickards in the 5 Minute Forecast

Chuck again.. Maybe I would stop my whining if that call by Rickards came true.. Physical Gold market calling the paper Gold Market's Bluff..

It's a fairly empty Data Cupboard here in the U.S. this week, but Chris tells us that today's data is important, so let's listen in to what he has to say.

Data today is limited to just the US Current Account Balance for the last quarter of 2016. The report is expected to show we ran a current account deficit of -$129 billion for the quarter, compared to the 3rd quarter deficit of -$113.0 billion. This data represents the balance of transactions in income, goods, and services which the US has conducted with the rest of the world.

As I told a group of investors last week, the Current Account balance is one important piece of information which we use to evaluate currencies. A positive current account balance naturally creates demand for the currency, and supports a currency's value over the long haul. According to the latest figures from The World Bank, the countries with the largest current account surpluses are Singapore (19.8% of GDP), Switzerland (11.42% of GDP), and Norway (9.02% of GDP). On the other end of the list, the United Kingdom has the worst Current Account Balance with a 2015 deficit of -5.36% of GDP and for comparison purposes, the US ran a deficit of -2.56% of GDP during this period.

Looking at longer term data, the countries near the top of the list of current account surpluses have been pretty consistent, so it should come as no real surprise that these countries also have some of the strongest currency returns over the long term. Looking at the currency return sheet which Tim Smith compiles for us on a monthly basis, the Swiss franc is the second best performing currency since we started keeping track back in 2002, and the Singapore dollar is number 5 on the list. To answer an obvious question which many of you will probably want to ask, the New Zealand Dollar is the best performing currency vs. the US$ since 2002."

Chuck again. yes, oh brother did I use to make a BIG DEAL out of the Current Account Deficit here in the U.S. But that was long before "funny little games" were getting played with the numbers. But in the end, the Current Account Deficit here will be around 2.5% of GDP. Back in 1985, Finance Ministers from around the world met at the Plaza Hotel in NYC, to discuss how strong the dollar had become, and ministers were worried about the balance of payments around the world getting out of whack.. So, take a wild guess at where the Current Account Deficit to GDP ratio was back in 1985? .. This would be a great place to have the Final Jeopardy music playing. But that answer is 2.50%..

But Current Account Deficits have become vogue for Central Banks and Treasuries of countries around the world, so no one breaks a sweat at a 2.5% deficit to GDP, and good thing too that GDP keeps growing.

To recap. The targeted mini-dollar-rally VS euros and sterling yesterday, was reversed overnight, and the Dollar Index is back below 100 this morning. The Commodity Currencies are outperforming the other currencies today, and Oil recovered a buck in price yesterday. A Gold discussion, a Current Account Deficit discussion, and more in today's letter!

Or, here's your snippet: "Euro sceptics have reacted with fury after Jean-Claude Juncker boasted that no-one else will want to leave the EU after they see how harshly Britain is punished.

The European Commission chief crowed that the 'example' of the UK would ensure the survival of the Brussels club.

He also threatened that Theresa May will have to accept demands from the EU for a divorce bill.

But his bullish stance was derided by Brexiteers who branded him 'out of touch' and accused him of living in a 'fool's paradise'."

Chuck again.. Juncker also said, 'Half memberships and cherry-picking aren't possible. In Europe you eat what's on the table or you don't sit at the table." WOW! I think that Juncker is a bit bitter about the U.K. leaving the EU, don't you?

Currencies today 3/21/17. American Style: A$ .7725, kiwi .7055, C$ .7497, euro 1.0793, sterling 1.2453, Swiss $1.0041, . European Style: rand 12.5876, krone 8.4460, SEK 8.7845, forint 285.78, zloty 3.9493, koruna 25.03, RUB 57.34, yen 112.68, sing 1.3917, HKD 7.7650, INR 65.10, China 6.8963, peso 18.95, BRL 3.0867, Dollar Index 99.97, Oil $49.32, 10yr 2.49%, Silver $17.43, Platinum $962.30, Palladium $785.36, Gold $1,231.30 and SGE Gold. $1,246.32

That's it for today.. in my best Gomer Pyle voice: Thank you, thank you, thank you, to one and all that sent along notes to me yesterday welcoming me back. Some of you even mentioned that you had a "feeling" that there was something wrong with me last week. So, spider sense is abundant! I can't begin to explain how devastated I am about that doctor's decision yesterday. But life goes on, right? So, now I have to make lemonade out of the lemons that were left on my front porch! This is where one of my fave comedians, Ron White, would say he would bring the Vodka! HA! And thanks to Chris for offering to take the conn on the Pfennig today, and his contribution. I love it when anyone offers up a contribution to the Pfennig! Modern English takes us to the finish line today with their song: I Melt With You. And with that, it's time to get out of your hair for today.. I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

The Daily Pfennig is written each business day by Chuck Butler and distributed by EverBank World Markets.

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