Goldman Sachs: Gold will drop $200 by end of year

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery on Thursday continued to drift lower, trading at a near 3-month low.

In afternoon trade gold was changing hands for $1,266.00 an ounce, down more than $4 an ounce compared to yesterday's closing price.

The latest retreat in the price pares the metal's gains for the year to under 5%.

The 2014 low for gold is $1,244 reached June 2, but many analysts believe the gold price has much further to fall.

On Thursday Goldman Sachs said it's sticking to its original forecast of gold at $1,050 an ounce by the end of the year.

CNBC quotes chief commodity strategist at the investment bank Jeffrey Currie as saying safe haven buying on the back of the Iraq and the Ukraine-Russia crisis and money printing due to economic weakness in Europe and Japan have been supporting gold somewhat, "but prices are being pressured by Federal Reserve policy."

"Our target at the end of this year is $1,050, really driven by the view that we think that the Fed will ultimately be the dominate force here and put more downward pressure [on prices]," Currie told CNBC's "Squawk Box" on Thursday. "Gold is a hedge against a debasement in the U.S. dollar." He said he'd recommend shorting gold.

Nickel surges on Philippine ban proposal, options expiry

* Philippine senator urges unprocessed ore export ban

* Nickel options expiry helps boost prices-analyst

* Tin falls to lowest level since January

Nickel prices jumped to a four-week high on Wednesday on news that a Philippine senator had urged a ban on unprocessed mineral ore exports and also following an options expiry in London.

 

Copper fell on higher exchange stocks and as investors downplayed signs of progress towards peace in eastern Ukraine while tin slid to a eight-month low on worries about oversupply.

 

Three month nickel on the London Metal Exchange raced 2.8 percent higher to close at $19,075 a tonne, the highest since Aug. 7.

 

Prices, which are up by around one-third in the year to date, were bolstered by news that a Philippine senator had filed a bill urging a halt to exports of unprocessed mineral ores. 

 

The proposed halt is similar to a ban introduced by Indonesia from January that led to a sharp spike in nickel prices and cut other ore exports.

 

Most analysts expect a deficit in nickel next year, and so the Philippines news worried investors, but some analysts were wary of the gains since.

 

"This is one senator introducing what we would call a private members bill. It's far too early to say whether it will gain traction," BNP Paribas analyst Stephen Briggs said.

 

Analyst Edward Meir at broker INTL FCStone was also sceptical. "Instituting a ban will result in foregoing massive amounts of revenue, not to mention the fact that buyers may very well have found other suppliers in the interim," he said in a note. "We would therefore not be jumping on this particular rally in nickel."

 

Many investors have been exposed to nickel through the options market, and the expiry of September options was also a factor in the surge in prices, analyst Leon Westgate at Standard Bank said.

 

"With options declaration rolling off, some of the recent gravitational pull of the $18,500 level has vanished," he said in a note.

 

Open interest in September call options was concentrated at the $18,500 strike. 

 

 

OTHER METALS SLIDE

 

In other metals, copper slid 1 percent to finish at $6,904 a tonne, its lowest level in two weeks. Prices have struggled to gain headway in recent weeks as expectations of fresh supply have dampened investor interest.

 

Daily LME data showed stocks rose by 7,000 tonnes to 154,825 tonnes, their highest since July 22 after two weeks of near straight increases. 

 

"Copper took a hit when LME stocks (data) came out. If the surplus is going to become more visible through exchange stocks, that would be meaningful. It's too early to say," Briggs said.

 

Markets were wary of news about the Ukraine conflict.

 

Russian President Vladimir Putin said a deal to end fighting in eastern Ukraine could be reached this week, but hopes of peace were clouded by Western concerns that the announcement was timed by the Kremlin to wrong-foot NATO on the eve of a summit.

 

"This news about Russia and Ukraine, the immediate impact you're more likely to see through oil andprecious metals for one, and secondly, it's not clear what it means," Briggs said.

 

Some investors hoped for further policy action at the European Central Bank meeting on Thursday after data showed euro zone retail sales slowed in July, while business activity grew at the slowest rate this year in August. 

 

Looser policy in Europe would cheapen liquidity for industry and investors, who may raise their holdings of hard assets, which tend to hold their value when paper currency depreciates.

 

Aluminium shed 1.3 percent to end at $2,079 a tonne, moving away from last week's high above $2,100, which was the most expensive since February 2013.

 

A partial closure of capacity at an aluminium smelter in China helped drive up domestic prices of the metal by as much as 4 percent this week as investors scramble to compensate for an expected shortfall in supply.

Caroline Bain, senior commodities economist at consultancy Capital Economics, said its forecasts for aluminium had recently been revised.

 

"We are anticipating a small deficit of just over 100,000 tonnes this year, but we have the market back in surplus next year as we expect China's production to keep growing," she told the Reuters Global Base Metals Forum.

 

Zinc closed 0.5 percent weaker at $2,365 a tonne, having struck a four-week top of $2,391.25 in the prior session, while lead shed 1.4 percent to $2,208.

 

Tin fell 0.8 percent to end at $21,350, the lowest level since January, as analysts and investors scratched out their previous forecasts of a deficit this year due to more supplies than expected and soft demand.

"God of Crude Oil Trading" Goes All In On Crude At $150 Bet

Andy Hall - known as the God of Crude Oil Trading to some of his peers - has, according to Bloomberg, built his success on a simple creed: Everyone who disagrees with him is wrong. He was one of the few traders who anticipated both the run-up in and the eventual crash of oil prices in 2008. Hall has made billions for the companies for which he’s traded by placing one aggressive bet after another; and now, he is all-in again.Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less. As one industry CEO warned, "anybody who bets against Andy Hall might be making a poor bet."

As Bloomberg reports,

“When you believe something, facts become inconvenient obstacles,” Hall wrote in April, taking issue with an analyst who predicted a shale renaissance could result in $75-a-barrel oil over the next five years.

Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.

Investing ever-larger sums of his own money, he’s buying contracts for so-called long-dated oil, to be delivered as far out as 2019, according to interviews with two dozen current and former employees and advisers who are familiar with Hall’s trading but aren’t authorized to speak on the record. To attract buyers, the sellers of these long-dated contracts -- typically shale companies that have financed the boom with mounds of debt -- need to offer them at a discount to existing prices.

Hall's reasoning...

...he digs deep, delving into the minutiae of how Texas discloses oil production, the tendency of some shale wells to play out quickly and the degree to which the boom has relied on debt. The simplest of his reasons, though, is that producers have already drilled in many of the best areas, or sweet spots. Hall predicts that growth in shale output will begin to moderate this year and U.S. production will peak as soon as 2016.

“Once those areas have been drilled out, operators will have to move to more-marginal locations and well productivity will fall,” Hall wrote in March. “Far from continuing to grow, production will start to decline.”

How Andy Long does it...

But not everyone agrees...

“We haven’t scratched the surface,” Hall’s former mentor O’Malley says. “There are massive additional shale fields in the United States. Technology does tend to move forward.”

...

Predictions of $75 oil, espoused by Citigroup oil analyst Edward Morse in a Barron’s story in March, really bug him, according to those who know his thinking.

“We are not sure what supports his conviction,” Hall wrote of the analyst’s theories in his June newsletter, although he didn’t identify Morse by name. “It is apparently not facts or analysis.”

The shale revolution faces political, environmental and technical hurdles in other parts of the world that will stall its rollout, Hall wrote. Morse, who also correctly predicted the sharp rise in crude prices in the past decade, says Hall has let his admiration of peak oil theorists cloud his judgment.

“It took a long time for believers in the Cold War to admit it was dead. So, too, is it taking a long time for peak oil believers to admit that it is dead,” Morse says.

So far this year, he appears to be getting confirmation...

So far this year, there are signs that he may be on the right track. In North Dakota’s Bakken and Texas’ Eagle Ford formations, which have accounted for almost all of the jump in U.S. output, the combined year-over-year growth in production in July fell below 30 percent for the first time since February 2010.

Two central questions about technology and shale will likely determine the outcome for Hall: how many wells producers will be able to drill in a finite amount of land that sits atop oil-bearing layers of rock and whether the U.S. renaissance will be repeatable abroad. Hall is betting no on both counts. Morse, and many in the energy world, are betting yes.

Timing is everything...

“He’s a phenomenal trader,” says David Neuhauser, a money manager at Livermore Partners who has followed Hall’s progress as an Occidental shareholder. “I believe he’s right about long-term prices; we’re in the same camp. What I don’t know is how long it will take for the market to catch up.”

*  *  *

Russia would sure be happy itf Andy Long is right... USA not so much... perhaps that is the crucial factor in this manipulated market that overpowers everything?

Icahn, Soros, Druckenmiller, And Now Zell: The Billionaires Are All Quietly Preparing For The Plunge

"The stock market is at an all-time, but economic activity is not at an all-time," explains billionaire investor Sam Zell to CNBC this morning, adding that, "every company that's missed has missed on the revenue side, which is a reflection that there's a demand issue; and when you got a demand issue it's hard to imagine the stock market at an all-time high." Zell said he is being very cautious adding to stocks and cutting some positions because "I don't remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people's thinking." Zell also discussed his view on Obama's Fed encouraging disparity and on tax inversions, but concludes, rather ominously, "this is the first time I ever remember where having cash isn't such a terrible thing." Zell's calls should not be shocking following George Soros. Stan Druckenmiller, and Carl Icahn's warnings that there is trouble ahead.

Billionaire 1: Sam Zell

On Stocks and reality...

"People have no place else to put their money, and the stock market is getting more than its share. It's very likely that something has to give here."

"I don't remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people's thinking," he said. "If there's a change in confidence or some international event that changes the dynamics, people could in effect take a different position with reference to the market."

"It's almost every company that's missed has missed on the revenue side, which is a reflection that there's a demand issue," he said. "When you got a demand issue it's hard to imagine the stock market at an all-time high."

He also lamented about how difficult it is to call a market top. "If you're wrong on when, that's a problem." His answer: "You got to tiptoe ... and find the right balance."

"This is the first time I ever remember where having cash isn't such a terrible thing, despite the fact that interest rates are as low as they are," he added.

On Obama and inequality...

"Part of the impact of these very, very low interest rates is that we've creating this disparity. The wealthy are benefiting from government policy and the nonwealthy aren't," he continued. "So we have a president who says we've got to fight this disparity and we have a Fed who's encouraging it everyday."

On Tax Inversion...

"This is both legal and accepted. If the government doesn't like the result, change the law," he said. "You have to have a rational tax policy." He said the top tax rate should be changed and the U.S. should not tax worldwide income.

Zell also said it's unfortunate that "this inversion thing has been captured as a political, electioneering item."

Source: CNBC

* * *

Billionaire 2: George Soros

Soros has once again increased his total SPY Put to a new record high of $2.2 billion, or nearly double the previous all time high, and a whopping 17% of his total AUM.

*  *  *

Billionaire 3: Carl Icahn

Ironically, Carl Icahn - poster-child of the leveraged financial engineering that has overtaken US equity markets on the back of Central Bank largesse - told CNBC that he was "very nervous" about US equity markets. Reflecting on Yellen's apparent cluelessness of the consequences of her actions, and fearful of the build of derivative positions, Icahn says he's "worried" because if Yellen does not understand the end-game then "there's no argument - you have to worry about the excesssive printing of money!"

*  *  *

Billionaire 4: Stan Druckenmiller

Simply put, Druckenmiller concludes, rather ominously, "I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy."

*  *  *

And here the BIS explains broken markets so easily, even a Janet Yellen can get it:

Financial markets have been exuberant over the past year, [...] dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows. Obviously, market participants are pricing in hardly any risks.

Growth has picked up, but long-term prospects are not that bright. Financial markets are euphoric, but progress in strengthening banks’ balance sheets has been uneven and private debt keeps growing. Macroeconomic policy has little room for manoeuvre to deal with any untoward surprises that might be sprung, including a normal recession.

*  *  *

So now we have a quorum of billionaires and the BIS all flashing warning signals which can only mean one thing: stocks are undervalued so buy, buy, buy...

And The Best Performing Asset In August Was...

August is the month in which the third try for a global economic recovery officially snapped, with first China, then Europe and finally Latin America succumbing to pre-recession forces and/or outright contraction. Which, in the New Normal, is great news as it means more hopes for even greater imminent central bank easing and "stimulus" if only for the wealthiest (and also please ignore the fact that 6 years of more of the same has not worked, this time will be different). Which explains why August, otherwise the sleepiest month of the year, proved to be fairly strong with both equities and bonds moving higher in tandem.

In fact, the situation in Europe is so dire, that European government bonds yields reached/retested their record multi-century all time lows. As Deutsche Bank summarizes, the 10yr government bond yields for Germany, France, Italy, Spain, and Switzerland declined by 27bp, 28bp, 26bp, 28bp and 11bp in August to 0.89%, 1.25%, 2.44%, 2.23% and 0.44% respectively. From a total returns perspective, a 2% gain in August was the best monthly performance for Bunds and OATs since January which brings their YTD gains to around 8-9%. Not bad in the context of a 7% and 4% YTD gains in Stoxx 600 and the FTSE 100. Italian and Spanish government bonds are still ahead though on a YTD basis with total returns to date at around 12-13%. Staying in rates, US Treasuries were somewhat of a laggard relative to its European peers in August with a monthly return of around 1.2%. Nonetheless, it was still the biggest gain for Treasuries since January and the outperformance in long bonds has also driven the 10s/30s curve to its flattest since June 2009. The search for yield has also benefited Credit on both sides of the Atlantic. Total returns were positive across the main European, US and Sterling credit benchmarks although the highlight was a rebound in US HY. The asset class gained +1.8% in August after having lost 1.7% in July as outflows steadied and reversed as the month progressed.

DM equities were generally higher but the highlight goes to the S&P 500 (+4%) after having made its first crossing of the 2,000 mark in August. Performance was more mixed in Europe but generally still moderately positive. EM equities had another decent month with the MSCI EM index enjoying a 2% plus return for the fourth consecutive month. Commodities were the key losers in August. The CRB index (-0.6%) finished lower for its second consecutive month. Copper, WTI, Brent, Sugar, Silver were all between 2%-6% lower. The fact that Oil prices have now gone officially negative for the first time in 2014 despite the ongoing geopolitical tension is perhaps telling us something?

But nowhere is the humor of central planning better exhibited than in Brazil was a clear outperformer with the BOVESPA (+10%) posting its best monthly performance since January 2012. Why? Because Brazil just entered a recession. Perhaps the reason why the joke that global thermonuclear war will send futures limit up is funny, is because it's true...

August return by asset class:

And YTD:

Source: Deutsche Bank

US Troops Are Heading To Ukraine

While only 'humanitarian adviser' boots on the ground are present in Iraq (and Syria), Reuters reports that preparations are under way near Ukraine's western border for a joint military exercise this month with more than 1,000 troops from the United States and its allies. As Obama told reporters last week, "that a military solution to this problem is not going to be forthcoming," it seems a little odd 'strategically' to go ahead with the Rapid Trident exercise Sept. 16-26 as a sign of the commitment of NATO states to support non-NATO member Ukraine, entailing the first significant deployment of U.S. and other personnel to Ukraine since the crisis erupted.

As Reuters reports,

As fighting between the army and Russian-backed rebels rages in eastern Ukraine, preparations are under way near its western border for a joint military exercise this month with more than 1,000 troops from the United States and its allies.

The decision to go ahead with the Rapid Trident exercise Sept. 16-26 is seen as a sign of the commitment of NATO states to support non-NATO member Ukraine while stopping well short of military intervention in the conflict.

...

"At the moment, we are still planning for (the exercise) to go ahead," U.S. Navy Captain Gregory Hicks, spokesman for the U.S. Army's European Command said on Tuesday.

...

But Rapid Trident will entail the first significant deployment of U.S. and other personnel to Ukraine since the crisis erupted.

...

"It is very important to understand that a military solution to this problem is not going to be forthcoming," Obama told reporters at the White House last week.

...

The United States European Command (EUCOM) says the exercise this month will involve about 200 U.S. personnel as well as 1,100 others from Ukraine, Azerbaijan, Britain, Canada, Georgia, Germany, Latvia, Lithuania, Moldova, Norway, Poland, Romania and Spain.  

Focused on peacekeeping, it will include command post drills, patrolling and dealing with improvised explosive devices.

*  *  *
Sounds like de-escalation to us... buy moar stocks.

China Services PMI Jumps Most On Record To 18-Month Highs

While Markit's Manufacturing PMI fell in August, the apparent demand for 'services' in China exploded. China Services PMI jumped from the worst on record 50.0 in July to 54.1 in August (18-month highs). This is the biggest MoM rise in the data on record... because they can. We have nothing to add because it's simply becoming too surreal and manipulated for rational explanation.

HSBC is quick to note that it's not all unicorns and ponies and that more stimulus sis till needed.

“The headline HSBC China Services PMI rebounded to a seventeen-month high of 54.1 in August, after registering an all-time low reading in July. Apart from the rebound in the headline number, other indices suggest a mixed picture rather than a broad-based improvement. The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policy makers should use further easing measures to help support the recovery.”