Gold Already at Multiyear Highs, Tacks on Another 1% as Trade Worries Deepen

Haven metal benefits as dollar eases, yields retreat in wake of trade tensions

By Rachel Koning Beals Updated Aug. 5, 2019 8:03 am ET | WSJ Pro

Gold’s haven appeal boosted the metal Monday as an escalating U.S.-China trade fight sparked a selloff in assets perceived as risky.

 

Gold on Friday notched its highest finish in more than six years, a day after President Donald Trump intensified a trade fight with China by announcing additional tariffs on Chinese goods and China pledged retaliation.

 

China’s yuan currency on Monday fell to its lowest level in more than a decade, breaching the 7-to-the-dollar level. Investors took that as a sign Beijing could allow further weakness, with the potential to further intensify trade tensions.

 

Early Monday, gold for December delivery on Comex rose $14.50, or 1%, to $1,472.10 an ounce. The contract settled Friday at $1,457.50 an ounce. That was the highest most-active contract finish since May 9, 2013, according to FactSet data. Prices ended about 2.7% higher for last week.

 

September silver , which because of its industrial use can be negatively impacted by the trade news, did add 23 cents, or 1.4%, to $16.50 an ounce Monday. It posted a loss of 0.8% for last week.

 

Gold gained as stock futures were down between 1.2% and 1.7%, while benchmark Treasury yields, another haven investment, dropped to 1.769%. The U.S. Dollar Index fell 0.4%, boosting the appeal of U.S. dollar-priced gold to investors using another currency.

 

“Gold catches a bid on a safe-haven bias. With the negative U.S. economy implications from the trade tariffs and the market pricing for the requirement for further rate cuts, the dollar is being pressured,” said Richard Perry, analyst with Hantec Markets.

 

“This is a double positive impact on gold. Fundamentally with real yields falling, gold will continue to rise. Weakness will be seen as a chance to buy, on a fundamental perspective and with the technicals also remaining strong, the outlook for further upside looks strong,” he said.

 

Trump on Thursday announced in a series of tweets that the U.S. would impose 10% tariffs on $300 billion of additional imported Chinese goods and products. The move, intensifying the long-running U.S.-China trade fight, came after both Washington and Beijing had earlier described recent talks as constructive.

 

Meanwhile, industrial metals traded mixed. October platinum gained $5.50, or 0.6%, to $858.50 an ounce, after a weekly decline of around 1.7%. September palladium lost $3.10, or 0.2%, at $1,401.10 an ounce. Palladium logged at an 8.3% drop for last week.

September copper fell 2 cents, or 0.7%, to $2.554 a pound, ending 4.2% lower for last week.

Silver Outperforming Gold

AuthorADAM HAMILTON ​4 August 2019 16min read

Silver has blasted higher in the last couple weeks, far outperforming gold. This is certainly noteworthy, as silver has stunk up the precious-metals joint for years. This deeply-out-of-favor metal may be embarking on a sea-change sentiment shift, finally returning to amplifying gold’s upside. Silver is not only radically undervalued relative to gold, but investors are aggressively buying. Silver’s upside potential is massive.

Silver’s performance in recent years has been brutally bad, repelling all but the most fanatical contrarians. Historically silver prices have been mostly driven by gold, with the white metal amplifying moves in the yellow metal. Silver has generally leveraged gold by at least 2x in the past. And rarely silver skyrockets as higher prices and bullish sentiment feed on themselves in powerful virtuous circles fueling huge gains.

Silver’s legendary upside is largely the result of it being such a tiny market. Silver’s leading fundamental authority is the Silver Institute. In its latest World Silver Survey covering 2018, it reported that total world demand ran 1033.5m ounces last year. That was worth a mere $16.2b at 2018’s average silver prices, a rounding error in markets terms. That was just 1/11th the size of last year’s world gold demand worth $179.4b!

So when investors grow interested in silver again and start deploying capital, relatively-small inflows in absolute terms catapult silver far higher. This classic dynamic last worked in 2016. In roughly the first half of that year, silver rocketed 50.2% on the parallel 29.9% maiden upleg of this current gold bull. That made for 1.7x upside leverage to gold, remaining on the weaker side historically but still well worth riding.

Through gold suffered a severe correction in the second half of 2016, it still ended that year 8.5% higher. Silver’s 15.1% gain amplified that by 1.8x. The secret to gaming silver is it tends to act like a sentiment gauge for gold. When gold is relatively high and has been rallying, traders start assuming that will persist.

 

And that’s when they want to buy silver. The white metal thrives mostly only when gold psychology is bullish.

In 2017 and 2018 gold fell deeper out of favor. The yellow metal wasn’t performing poorly, but it couldn’t break out to new bull-market highs. And contrarian investing was dying, with stock markets levitating to endless new record highs on hopes for big tax cuts soon and extreme Fed dovishness. With gold apathy stellar, silver didn’t stand a chance. Silver sentiment and thus price performance is totally controlled by gold.

Even though gold rallied a strong 13.2% in 2017, silver lagged at mere 6.4% gains. That 0.5x leverage to gold was terrible. The longer silver underperformed, the more traders capitulated on it and walked away. 2018 was even worse. Though gold only drifted 1.6% lower, silver plunged 8.6% making for horrendous 5.5x downside leverage. Silver wasn’t worth the big additional risk of its serious volatility compared to gold.

Thankfully silver’s dire fortunes started to change in early 2019, when I wrote my original essay on Silver Outperforming Gold. But unfortunately that was short-lived, as silver is slaved to gold. In mid-February the young gold upleg stalled out and reversed lower, after failing to break out to new bull-market highs. That kneecapped silver’s budding outperformance streak, casting it back to the underperformance wasteland.

By June 19th, silver was back to its recent miserable form. It was down 2.1% year-to-date despite gold enjoying a respectable 6.1% YTD rally. While we were taking advantage of the hellish sentiment to buy and recommend fundamentally-superior silver-mining stocks at crazy-low prices in our newsletters, it was hard to write about silver. Virtually no one was the least bit interested, with suffocating apathy universal.

But silver started awakening from its bearish haze on June 20th, kicked in the butt by an extraordinary watershed event. That day gold finally surged to its first new bull-market high since way back in early July 2016, when this bull’s maiden upleg peaked! Gold’s $1389 close was also its highest in 5.8 years, starting to unleash powerful new-high psychology. In the 5 weeks since, that has increasingly infected silver.

Silver didn’t respond immediately to gold’s decisive bull-market breakout. On breakout day it stuck to its languid ways, only rallying 1.8% on a major 2.1% gold up day. The silver price action actually stayed relatively weak for the next several weeks. By July 11th gold was 3.4% higher from the day before that major breakout, while silver slumped 0.3% lower. But something interesting was brewing behind the scenes.

Silver investment demand is notoriously difficult to monitor. The best fundamental data available for this white metal is again from the Silver Institute’s World Silver Survey. But as awesome as that is, it is only published once per year. There is a high-resolution proxy for silver investment demand available daily though, the physical-silver-bullion holdings of the world’s largest and dominant silver exchange-traded fund.

That is the American SLV iShares Silver Trust, which has a huge first-mover advantage after launching way back in April 2006. As of the end of 2018, the Silver Institute’s data showed SLV commanded fully 49% of all the silver held by all the world’s silver ETFs! SLV’s holdings are published daily, and when they climb it reveals American stock-market capital flowing into silver. This dynamic is important to understand.

SLV’s mission is to track the silver price, giving stock traders full silver exposure. But the SLV-share supply and demand is independent of silver’s own. If stock traders are buying SLV shares faster than silver itself is being bought, SLV’s price will decouple from silver’s to the upside. SLV’s managers prevent this by shunting that excess share demand back into physical silver itself. The mechanics are simple in concept.

When SLV prices are being bid up faster than silver, new SLV shares are issued to absorb that differential demand. The capital raised from selling those shares is then used to buy more physical silver bullion. This enables SLV to act as a conduit for stock-market capital to flow into and out of silver itself. When SLV shares are sold faster than silver, this process reverses. SLV holdings reveal silver investment trends!

While silver was drifting sideways to lower in the first half of July and looking unimpressive, American stock investors were starting to buy SLV. Between July 2nd and 9th, SLV enjoyed daily holdings builds averaging 0.7% in 4 out of 5 trading days! At the same time the leading gold ETF’s holdings, which is of course the GLD SPDR Gold Shares, were mostly draws. Silver was attracting investors while gold wasn’t.

With gold consolidating high and largely holding over $1400, precious-metals sentiment was improving. After long ignoring gold and silver, investors were starting to take another look. Silver had not only really lagged gold’s breakout rally since mid-June, but it was radically undervalued compared to its dominant primary driver gold. We’ll explore that shortly. So smart contrarians were starting to shift back into silver.

This didn’t first become evident in silver’s price action until July 15th, just a couple weeks ago. That day silver rallied 1.2% despite gold only edging 0.1% higher. That was peculiar and out of character for silver in recent years, so it could’ve been an anomaly. But it proved otherwise. As of this Wednesday’s data cutoff for this essay, silver has outperformed gold in a major way for 8 trading days in a row! That’s incredible.

On the 16th silver climbed 0.9% while gold fell 0.9%. On the 17th and 18th silver surged 2.6% and 2.3% on 1.5% and 1.4% gold up days. The 19th saw silver only retreat 0.7% as gold dropped 1.4%. Then on the 22nd and 23rd silver rallied 1.0% and 0.2% despite gold’s 0.1% and 0.5% declines. This Wednesday the 24th saw silver climb 1.1% outpacing gold’s 0.6%. Such a strong outperformance streak is important.

Thus in the past couple weeks or so, silver has blasted 9.7% higher despite a mere 1.3% gold rally! That makes for epic 7.4x upside leverage, the kind silver enthusiasts dream about. This outperformance stretch is even more impressive because it was driven by big capital inflows into SLV by American stock investors returning to silver. As of this Wednesday SLV saw strong holdings builds for 6 trading days in a row.

That started with a monster 2.6% SLV build on the 17th, which proved the biggest seen by far since way back in January 2013! Gold largely holding over $1400 rekindled American stock investors’ interest in silver in a way not seen in 6.5 years. Over the next 5 trading days ending Wednesday, SLV’s holdings grew another 0.8%, 1.0%, 2.6%, 0.5%, and 0.5%. This silver-investment-buying streak is pretty amazing.

While silver’s outperformance of gold has exploded only in the last couple weeks, it has totally changed how silver looks since gold’s decisive bull-market breakout on June 20th. As of Wednesday, silver has now rallied 9.3% over that 24-trading-day span compared to gold’s 4.8% gain. That’s right back up to that historical 2.0x-upside-leverage norm. SLV’s holdings enjoyed 13 build days, 11 flat days, and 0 draw days.

They have catapulted SLV’s holdings 12.6% higher since the day before gold’s breakout. Via this leading ETF, American stock investors are now holding 1/8th more silver in absolute-ounces terms in just 5 weeks. Over this same span GLD’s holdings only climbed 7.6%. And it only saw 8 holdings-build days, 5 flat days, and a whopping 11 draw days. Something special, major, and likely pivotal is underway in silver!

Nevertheless, silver remains in an ugly place compared to gold. YTD as of this Wednesday, silver was just up 7.1% compared to gold’s 11.1%. Gold’s $1445 upleg-to-date high achieved on July 18th was its best level seen in 6.2 years. Silver’s own upleg-to-date high of $16.55 this Wednesday was merely a 1.1-year one. So though silver has started to outperform gold again, it has a long way to go to look impressive.

There’s no sugarcoating it, the carnage in silver in recent years has been catastrophic. Thanos himself couldn’t have done worse with a fully-stoned Infinity Gauntlet! While there were a half-dozen silver charts I considered sharing this week, this one is the most telling. It shows the Silver/Gold Ratio over the past decade-and-a-half or so. This SGR is the best measure of whether silver prices are relatively high or low.

The SGR simply divides the daily silver close by the daily gold close, but yields hard-to-parse decimals like 0.0116 this Wednesday. So I prefer to use an inverted-axis Gold/Silver Ratio instead, which is the same thing but offers easier-to-understand numbers like 86.1 mid-week. Silver prices had almost never been lower relative to gold in modern history before recent weeks! Silver is climbing out of a stygian abyss.

 

Back in mid-June just before gold’s decisive bull-market breakout changed everything, the SGR had fallen to an absurd 90.4x. In other words it took 90.4 ounces of silver to equal the value of a single ounce of gold. That was wildly out of whack with historical precedent. From 2005 to just before 2008’s first stock panic in a century, the SGR averaged 54.9x. From 2009 to 2012 after that panic, it averaged a similar 56.9x.

The SGR had generally meandered in the mid-50s for decades, so miners had long used 55.0x as the leading proxy for calculating silver-equivalent or gold-equivalent ounces. The SGR also experienced great cycles, long secular periods of silver outperformance where the SGR generally fell followed by multi-year spans of silver underperformance where the SGR rose on balance. SGR extremes were short-lived.

As gold surged over this past month, the SGR spiraled higher still to a mind-boggling 93.5x on July 5th. That was an apocalyptic 26.8-year low, the worst silver levels relative to gold since October 1992. That is longer than the average investing lifespan of today’s traders, over a quarter century! And 93.5x isn’t much better than the worst SGR since 1970, 100.3x seen briefly in February 1991. Silver has just been slaughtered.

For an incredible 8.2 years the SGR had been rising on balance, showing chronic underperformance relative to gold. This secular cycle is far-overdue to turn, and after extreme lows historically silver has spent years mean reverting higher relative to gold. 2008’s extraordinary stock panic offers a fantastic recent example of how greatly silver can soar after being battered down to extreme lows relative to gold.

Back in November 2008 in that most-extreme market-fear event seen in our lifetimes, the SGR was crushed to 84.1x. Silver was radically undervalued relative to gold, investors wanted nothing to do with it. Such a great disconnect between silver and gold wasn’t sustainable given their relative market sizes and the ratio at which they are mined. So over the next 2.4 years into April 2011, silver skyrocketed 442.9% higher!

After SGR extremes silver doesn’t just revert to the mean, but overshoots proportionally towards the opposite extreme. The SGR fell as low as 31.7x when that silver bull peaked over $48 per ounce. Odds are the SGR will again overshoot and at least return to the 40s before silver’s next bull fully runs it course. With silver not far off its lowest levels compared to gold in modern times in early July, it has vast room to soar.

Gold’s current bull market was born in mid-December 2015, and is what has driven silver higher during gold-bull uplegs. Since then, the SGR has averaged just 77.8x. That is actually higher than during that wild stock-panic span in late 2008, incredibly extreme! Over the past several weeks or so, the SGR has already started mean reverting falling as low as 86.1x this week. Silver’s upside potential from here is epic.

At $1400 gold and this miserable gold-bull-average 77.8x SGR, silver would need to trade at $18.00. That’s another 9% higher from this week’s levels. But again mean reversions off extremes don’t just stop at the averages, but keep going like a pendulum. That yields an SGR target of 62.1x, implying $22.56 silver at $1400 gold. Silver would have to power another 36% higher to regain those still-pathetic SGR levels.

If gold’s young secular bull persists for years to come as it ought to based on historic precedent, silver is going to climb far higher greatly lowering the SGR. If it just mean reverts back to that longstanding 55.0x average with no overshoot, that means $25.45 silver at $1400 gold. These SGR-mean-reversion-and-overshoot silver-price targets grow far bigger at higher prevailing gold prices and proportional-overshoot SGR lows.

The point of all this is silver is so radically undervalued compared to its primary driver gold that it needs to soar vastly higher to reestablish normal relationships. While silver’s outperformance over the past couple weeks is impressive, it hardly even registers coming off such extreme lows. Digging out of such a deep hole relative to gold, silver needs to rally higher on balance for many months or even years to come!

While investment buying including via silver ETFs like SLV will be the primary driver, silver futures will also play a big role. A couple weeks ago I wrote about gold’s high short-term selloff risk due to how the gold-futures speculators are now positioned, with excessively-bullish bets that are actually very bearish over the near term. A healthy gold pullback or correction would certainly drag silver down with it for a spell.

The most-bullish situation possible for gold- and silver-futures is for speculators to be all-out long upside bets and all-in short downside bets. That leaves them nothing to do but buy. That is 0% longs and 100% shorts. In the latest weekly Commitments of Traders report, specs’ gold-futures bets were running 75% on the long side and 10% on the short side up into their entire bull-market trading ranges. That’s really bearish.

By bull-to-date precedent, gold-futures speculators had room to sell 347.4k contracts but only room to buy 80.5k. That made for an ominous 4.3x ratio of potential selling outweighing potential buying. I bring this up because speculators’ silver-futures positioning was nowhere near as menacing. They are running 66% on the long side and 44% on the short side up into their gold-bull-market trading ranges, much less bearish.

Speculators had room to sell 97.4k silver-futures contracts and buy 65.8k in the latest CoT report, for a way-more-moderate 1.5x ratio of potential selling to potential buying. The takeaway here is silver has a lot more near-term futures-buying-driven upside potential than gold does. Together silver investment buying and silver-futures buying are powerful forces to catapult silver higher. But it all depends on gold.

If gold continues to consolidate high above or near $1400, that will foster the bullish sentiment necessary for silver buying to persist. New-high psychology driving gold investment buying could make this happen. But if something spooks the gold-futures speculators, they have massive room to sell which would quickly cascade and hammer gold lower. That would suck in silver, driving both into healthy short-term corrections.

But once speculators’ excessively-bullish gold-futures bets normalize, gold and silver should be off to the races again with silver really outperforming. So any material weakness should be used to aggressively accumulate physical silver bullion, SLV shares, and stocks of fundamentally-superior silver miners. Their upside potential trounces silver’s because their profits growth really amplifies higher prevailing silver prices.

Again silver soared 50.2% higher in largely the first half of 2016. The leading SIL Global X Silver Miners ETF rocketed a colossal 247.8% higher in essentially that same span! That made for huge 4.9x leverage to silver’s gains. Every quarter I analyze the fundamentals of the major silver miners of SIL, with the latest essay covering Q1’19 results. Now is the time to do your homework before silver really starts running again.

To multiply your capital in the markets, you have to trade like a contrarian. That means buying low when few others are willing, so you can later sell high when few others can. In recent months well before gold’s breakout, we recommended buying many fundamentally-superior gold and silver miners in our popular weekly and monthly newsletters. Mid-week our unrealized silver-stock gains already ran as high as 113.8%!

To profitably trade high-potential gold and silver stocks, you need to stay informed about broader market cycles that drive them. Our newsletters are a great way, easy to read and affordable. They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks. Subscribe today and take advantage of our 20%-off summer-doldrums sale! The biggest gains are won by traders diligently staying abreast, always learning.

The bottom line is silver really started outperforming gold again in the last couple weeks. Silver surged dramatically on heavy investment buying, as evidenced by big differential SLV-share demand. This looks like a sea-change sentiment shift getting underway in silver, especially after it was crushed to its lowest levels relative to gold in well over a quarter century. Silver is long overdue to mean revert vastly higher.

Silver effectively acts like a gold sentiment gauge, with investment demand dependent on gold’s fortunes. The longer gold consolidates high or grinds higher, the more silver will be bought. Coming out of such radically-undervalued levels, silver’s future bull-market upside should greatly exceed gold’s. But silver will also get sucked into periodic gold corrections, which can be used as lower entry points to add silver positions.

Global recession will come in 9 months if Trump takes this one step, Morgan Stanley argues

Published: Aug 5, 2019 9:41 a.m. ET

The world economy will enter recession if Chinese tariffs rise to 25%, Morgan Stanley says.

 

By STEVEGOLDSTEIN EUROPEAN MARKETS EDITOR

   

A recession will come in nine months’ time if President Donald Trump goes one step further in his plan to impose tariffs on Chinese-made consumer products, a leading brokerage argues.

 

In a note to clients, Morgan Stanley makes the case that a recession will hit if Trump imposes 25% tariffs on some $300 billion of Chinese goods not currently subjected to tariffs. Trump has said he’ll impose a 10% tariff on those goods in September.

 

That’s bad enough, but tolerable, says Morgan Stanley, which makes the case that if those 10% tariffs are kept for longer than four or five months, global growth will remain weak in the range of 2.8% to 3%, despite interest-rate cuts from central banks.

 

Global growth was 3.6% in 2018 and projected to grow 3.2% in 2019, according to the July estimates from the International Monetary Fund.

Morgan Stanley defines a global recession as one where global growth is below 2.5%.

The real concern, however, is corporate confidence. “While we don’t know the exact tipping point, we are cognizant of the risk of a potential non-linear tightening in financial conditions and its impact on capex and the labor market,” the Morgan Stanley analysts say.

 

The risks, they argue, are skewed to downside. The global economy would enter recession in three quarters if Trump took the tariffs up to 25% and China were to respond.

 

Bank of America Merrill Lynch also flagged the risk of tariffs going up to 25%.

 

“We see substantial risk that the 10% tariff could get increased to 25%. At that point we would have 25% tariffs on all Chinese imports. We also think there is a high risk of tariffs on imports of autos and parts from outside North America (with South Korea also likely getting an exemption), particularly as such tariffs would incentivize producers to meet the USMCA’s stricter local-content rules,” said economists at BAML, referring to the updated trade pact between the

 

U.S. stocks DJIA, -1.95%   and other major indexes opened sharply lower on Monday, as the Chinese central bank didn’t get in the way of the dollarUSDCNY, +1.6138%  rallying past the key 7 level vs. the yuan.

 

Investors flocked to the safety of U.S. government bondsTMUBMUSD10Y, -4.02%   and gold GC00, +0.80%.  

The case for owning gold keeps getting stronger

By BRETT ARENDS Published: Aug 5, 2019 5:06 p.m. ET

The precious metal again becomes a safe haven from the world’s woes

Bullion prices surged Monday, while everything else fell apart, rising 1.5% to a fresh six-year high. Gold GC00, +1.25%  is proving the hot asset of the trade battle between Donald Trump and China.

Gold has now risen a hefty 17% since the moment last December when Trump warned: “I am a Tariff Man.”

During that time it’s left a lot of other popular investments trailing in the dust. It’s beaten the S&P 500 SPX, -2.98%  stock index by a hefty 15 percentage points, include three on Monday. It’s crushed popular investments like AppleAAPL, -5.23%, Alphabet GOOG, -3.49% GOOGL, -3.47%   and NetflixNFLX, -3.51%. It’s beaten Tesla TSLA, -2.57%  by 53 percentage points.

Sorry, Elon. But right now your dreams of reinventing the future are proving less exciting to Wall Street than a boring, shiny metal that people used as currency in the Old Testament.

Gold-China connection

Gold is up because the Chinese currency is down. Beijing just let the yuan drop to its lowest levels since 2008 as retaliation for Trump’s last set of tariffs. A lower yuan makes Chinese exports cheaper in America, somewhat offsetting the cost of the extra tariffs. It also makes U.S. exports more expensive in China.

Beijing also slashed future imports of U.S. foodstuffs. Bad news for Trump-supporting U.S. farmers — or, more accurately, for the long-suffering blue-state taxpayers who will have to bail them out yet again.

Gold is up because no one now knows if the U.S. currency is going to follow suit. Last week, Trump’s chief economic adviser, Larry “King Dollar” Kudlow, ruled out intervention in the currency markets to drive down the dollar. He was speaking only a few days after his boss said the exact opposite — namely that intervention to drive down the dollar was very much on the table.

It doesn’t exactly inspire confidence.

Gold is also up because European government bond yields are now so low that when you keep your money in cash, you actually have to pay people to lend them money.

Global worries

Oh, and gold is also up because nobody knows what’s going to happen to the euro and the British pound if Britain crashes out of the European Union in a “hard,” no-deal Brexit. And that outcome, notwithstanding my previous hopes, is now starting to look more and more possible. After three weeks in Britain talking to political insiders there, I am now much less optimistic than I was. I still think there’s investment value in sterling and in many London-listed stocks.

 

But I am much more worried about the risks of a Brexit panic in the next couple of months. New British Prime Minister Boris Johnson seems to be gambling heavily that a breach with the EU will help him politically more than it will hurt the economy.

“Everybody wants a lower currency,” says Josh Strauss, money manager at Appleseed Capital and a long-term gold investor. “If that’s the case, and they’re not making more gold, it’s the place to be.”

Wall Street, including the Wall Street media, usually only pay attention to gold once it’s already risen. But if you’re looking for straightforward answers, no one has them.

What is gold really worth? How high could it go? Is it too late to buy now? Should you own it long-term?

Nobody actually has any answers to these questions. If they did, we’d all be rich. It takes two points of view to make a market. There are perfectly rational arguments claiming gold bullion, currently $1,445 an ounce, should really be about half that, or many times higher.

Bull market

But if gold is in a bull market, one trading signal strongly suggests this has plenty of room to run. Bullion broke above its 200-day moving average last December and has remained there. Historically, this has been a good sign that a bull market is still running for many financial assets, such as stocks. And it “works great” for gold, too, says financial expert and money manager Meb Faber, author of research on moving averages as market-timing signals.

In other words, history says: Own gold when it’s above its 200-day trading average. Avoid it when it’s below. And right now, it’s above it.

 

Numbers from FactSet say that since the mid-1970s, when modern gold trading really took off, this strategy would have dramatically increased your profits and reduced your risks.

There are, naturally, no guarantees that will be the same in the future.

When it comes to trading, many may be reluctant to buy into an asset like gold after it’s already risen.

But does this feel like market top for gold? Is there any euphoria? Are the airwaves full of “I told you so’s” by gold bugs? Is it the financial topic of the day?

 

And are the trends behind it — from Trump to China to Brexit — running out?

The trend is your friend, as they say on Wall Street. This looks a lot like a trend.

How to solidify your financial plan in case the trade war sparks a recession

Lorie Konish@LORIEKONISH August 6, 2019 CNBC

KEY POINTS

  • As trade tensions with China continue, economists are pointing toward a possible recession.

  • Fears of a downturn mean it’s a good time to check on where your money is going and refresh your financial plan.

  • Ramp up savings and make sure you’re still on track to accomplish your long-term goals.

Recession is probably a word you haven’t heard in a while, at least not in the present tense.

Yet economic experts fret that one could be coming. And how fast that becomes a reality depends in part on U.S. trade negotiations with China.

A global recession could happen in as soon as nine months, Morgan Stanley chief economist Chetan Ahya said Monday, if the U.S. trade war with China escalates.

Warnings about increased chances for a downturn are not new. In June, the National Association for Business Economics said in its outlook survey that recession risks will “rise rapidly” in 2020.

If those predictions make your stomach sink, now is the time to come up with a plan to make sure you can weather a pullback in the economy.

Assess where you are

The first thing you want to do is take a look at what you’re really spending, said Diahann Lassus, president and chief investment officer at Lassus Wherley, a subsidiary of Peapack-Gladstone Bank in New Providence, New Jersey.

If your credit card bills are out of control, it’s time to rein in that spending, she said. That means curbing unnecessary discretionary expenses, such as dinners out.

Also, take stock of where you are with your cash flow. If your job feels shaky, now is the time to refresh your resume before a job loss.

“Don’t wait until it happens,” Lassus said. “Think about what you would do.”

Build up your cash reserves

Many advise that a cash emergency fund should be at least three to six months’ worth of expenses.

But these days, financial advisor Douglas Boneparth, president of Bone Fide Wealth in New York, said he is advising clients to have six to 12 months’ set aside because of various risks including political uncertainties.

“When things are scary, people can feel less worried when they have a decent cushion,” Boneparth said.

Ideally, you want to put those emergency reserves in accounts, such as a high yield savings or money market, where you will be able to access them if you need them.

That is something to keep in mind as you also direct money to retirement or 529 college savings plans, which are less liquid.

“This is not to be confused with lowering your savings rate,” Boneparth said. “This is just the allocation of what you’re saving.”

Re-evaluate your priorities

Financial advisor Winnie Sun, founder of Sun Group Wealth Partners in Irvine, California, said her meetings with clients now have one key theme: stop, drop and reassess.

That doesn’t mean abandoning your goals entirely. But it does mean making changes to how you address those priorities.

For a client who is transitioning to retirement, that may entail looking at long-term-care coverage in case their portfolio might not generate as much income to cover their health-care costs, Sun said.

For others who are in their 20s and just getting started, that means investing more toward their long-term goals when the market is down.

Generally, you want to avoid moves that involve taking on more debt now, Sun said. And if you’re still uncertain, get a second opinion from a financial advisor, she said.

“We’ve forgotten, because the market has been good for us for so long,” Sun said. “In 2008-2009, it paid to be conservative.”

Gold Tops $1,500 as Investors Seek Shelter From Gathering Storm

By Ranjeetha Pakiam, Rupert Rowling, and Justina Vasquez 

August 6, 2019, 5:29 PM PDT Updated on August 7, 2019, 7:17 AM PDT

  • Bullion in demand on fallout from U.S.-China trade dispute

  • China added to gold reserves for an eighth straight month

Gold futures rallied above $1,500 an ounce on sustained demand for the traditional haven as the U.S.-China trade war festers, global growth slows and central banks around the world ease monetary policy.

The metal advanced as much as 2.6% an ounce on the Comex to the highest since 2013. The move extends this year’s climb to 18%, with gains underpinned by inflows into exchange-traded funds and central bank purchases. China’s central bank expanded its gold reserves for an eighth straight month in July.

Gold has been one of the chief beneficiaries of the turmoil in global financial markets as Washington and Beijing spar over trade. In recent days, the Trump administration threatened fresh tariffs against Chinese goods, the yuan was allowed to sink, and the U.S. branded China a currency manipulator. The stand-off has boosted the odds of more easing from the Federal Reserve. Mounting “growth worries,” prompted Goldman Sachs Group Inc. to predict prices will climb to $1,600 an ounce over the next six months.

“Gold is serving its traditional role as a safe-haven asset,” said Wayne Gordon, executive director for commodities and foreign exchange at UBS Group AG’s wealth management unit. Under the bank’s risk case, marked by a further escalation of the trade fight, prices could go as high as $1,600, he said.

Futures for December delivery traded at $1,513.80 an ounce at 10:15 a.m. in New York, gaining for a fourth day. Silver also surged, with futures climbing above $17 for the first time since June 2018.

Miners also benefited from the rally with AngloGold Ashanti Ltd. rising as much as 7.8% to its highest price in more than seven years. Barrick Gold Corp., Newmont Goldcorp Corp. and Newcrest Mining Ltd. also soared.

Lower Rates

Last month, the Fed reduced borrowing costs for the first time in more than a decade, responding in part to the impact of the trade war. Lower rates boost the appeal of non-interest-bearing bullion.

On Wednesday, New Zealand’s Reserve Bank shocked markets with a half-percentage point interest-rate reduction, while India’s central bank also delivered a bigger-than-expected move. Those cuts were followed by the Bank of Thailand unexpectedly lowering its benchmark interest rate for the first time in more than four years.

The latest ructions have sent investors rushing to havens, pushing the world’s stockpile of negative-yielding bonds to a record, with the market value of the Bloomberg Barclays Global Negative Yielding Debt Index closing at $15.01 trillion Monday. The yield on 10-year Treasuries has tumbled.

Bullion has plenty of fans among veteran investors. Mark Mobius said in July prices were poised to top $1,500 as interest rates headed lower, declaring: “I love gold.” Billionaire hedge-fund manager Ray Dalio has suggested the market may just be at the start of a period that would be very positive for gold.

In addition to the challenges thrown up by the trade war, there are other risks. In Europe, investors are tracking the chances of a no-deal Brexit later this year, while there are tensions in the Middle East between Iran and the U.S.

Further support for the rally has come from central-bank buying, with authorities in China, Russia, Poland and Kazakhstan all boosting holdings. That trend shows no sign of slowing, with the People’s Bank of China addingalmost 10 tons to reserves in July.

“We see the ongoing steep rise in the gold price as an expression of the high risk aversion among market participants,” said Daniel Briesemann, an analyst at Commerzbank AG. “Gold is quite clearly still in demand as a safe haven in the current market environment, as reflected, among other things, in continuing ETF inflows. ”

— With assistance by Krystal Chia

Gold Tops $1,500

Stoking the gains are renewed concerns that the trade fight between the U.S. and China will continue to hurt global growth

By Ira Iosebashvili Aug. 7, 2019 11:09 am ET

Gold prices topped $1,500 a troy ounce for the first time in six years, driven higher by a drop in bond yields and investors’ flight from global stocks.

Gold for December delivery was recently up 1.8% to $1,511.50 a troy ounce on the Comex division of the New York Mercantile Exchange, its highest price since 2013. Prices traded as high as $1,522.70 a troy ounce earlier in the session.

Stoking the gains are renewed concerns that an intensified trade war between the U.S. and China will hurt already fragile global growth. Recent economic data has further fueled those fears—German industrial production figures for June, reported Wednesday, were much weaker than analysts expected, a sign that Europe’s largest economy continues to struggle.

U.S. stocks were down sharply in recent trading, with the S&P 500 falling around 0.8%. Government bond yields around the world slid further on Wednesday after interest-rate cuts by three central banks exacerbated investors’ fears of slowing growth around the world, with the yield on 10-year Treasurys breaking below 1.6% earlier in the session.

A popular destination for nervous investors, gold tends to attract buying during times of economic or political uncertainty. Prices are up more than 18% this year. Other havens, such as the Japanese yen and Swiss franc, have also notched big gains in recent weeks.

“The collective mood is one where the trade war has taken on a different life,” said Ira Epstein, a strategist with Linn & Associates. “There’s a lot of fear out there.”

Prices for the metal have also benefited from falling bond yields. Gold, which struggles to compete with yield-bearing investments when yields rise, tends to become more alluring to investors when yields decline.

Meanwhile, fears of slowing demand and plentiful supplies continued to weigh on oil prices. U.S. oil was recently down 4.5% to $51.20 a barrel, extending losses after data showed Wednesday that stockpiles unexpectedly increased last week.

Brent crude, the global benchmark, was off 2.4% to $57.55 a barrel after falling into a bear market Tuesday.

China Scoops Up More Gold for Reserves During Trade War

By Ranjeetha Pakiam August 7, 2019, 2:11 AM PDT Updated on August 7, 2019, 4:11 AM PDT

  • PBOC increases bullion holdings as prices rally to 2013 high

  • Influx in July takes recent expansion to more than 90 tons

There’s a powerful constant amid the to-and-fro of the U.S.-China trade war as currency policy gets dragged into the standoff between the world’s two top economies: Beijing wants more gold in its reserves.

China’s central bank expanded gold reserves again in July, pressing on with a run that stretches back to December. The People’s Bank of China raised holdings to 62.26 million ounces from 61.94 million a month earlier, according to data on its website. In tonnage terms, the inflow was close to 10 tons, following the addition of about 84 tons in the seven months to June.

Gold has rallied in 2019 to a hit a six-year high as global growth stutters, central banks including the Federal Reserve eased policy, and the festering trade war all combined to bolster demand. Increased central-bank buying from China to Russia and Poland has helped to buttress consumption at a time of rising prices. This week, the conflict between Washington and Beijing worsened as the yuan was allowed to breach a key level, reinforcing the case for havens.

“It is important for the country to diversify away from the U.S. dollar,” Philip Klapwijk, managing director at consultant Precious Metals Insights Ltd., said before the PBOC’s latest figure was released. “Over the long run, even relatively small-scale gold purchases add up and help to meet this objective.”

Gold futures rose as much as 1.3% to $1,503.30 an ounce on Wednesday, the highest since 2013, before trading at $1,500.70 at 11:26 a.m. in London.

“This fits with China’s well established pattern of increasing gold reserves month after month but not in a large enough volume to disrupt the gold market,” said Ross Strachan, a senior commodities economist at Capital Economics Ltd. “We expect them to continue this trend as part of their long-term strategy to diversify their foreign exchange reserves.”

Central banks continued to load up on gold this year, helping push total bullion demand to a three-year high in the first half, according to the World Gold Council. That trend is expected to continue, with a survey of central banks showing 54% of respondents expect holdings to climb in the next 12 months.

“Bear in mind that China is the largest mine producer of gold in the world,” Klapwijk added. “The state can always buy local mine production using” local currency, he said.

— With assistance by Qi Ding

'Gold Who? Silver Has Plenty of Upside Potential' - Bloomberg Intelligence

Sarah Abu-Shaaban  Wednesday August 07, 2019 09:57 Kitco News

Silver prices are set to sustain key levels above their 50-month average for the first time since 2013, according to a recent report from Bloomberg Intelligence.

Silver is bound for the upside, Bloomberg Intelligence senior commodity strategist Mike McGlone said in the August commodity outlook report.

“On the cusp of closing above key resistance, upside potential in the silver price has rarely been more extreme,” he wrote. “Near the end of July, silver is set to hold above its 50-month average for the first time in six years.”

McGlone noted that there are various factors affecting the economic environment and their culmination is what will fuel this breakout.

“The Fed is reversing to an easing cycle, silver volatility and managed-money net positions are recovering from multidecade low/short extremes, and mean-reversion potential in the lofty dollar and low silver prices is hardly ever greater,” McGlone said.

The metal is on track to gain significant headwinds, the report stated, potentially reaching levels not seen since the last major silver bear market. Although it may take some time, silver’s breakout is coming.

“Breaching long-restrictive trend lines can be ephemeral, but this breakout packs plenty of possible punch,” he wrote. “Today’s silver price would have to double just to revisit the halfway mark – $32 an ounce – of the metal’s 2011-15 bear market.”

McGlone added that gold prices are also headed to the upside due to the U.S. dollar’s decline, stating that the yellow metal will be revisiting resistance near 2013’s peak at $1,700 an ounce. These gains will be reflected more aggressively in the silver price, the report showed.

“Often referred to as leveraged gold, silver has a greater negative correlation to the dollar,” he said. “Silver packs plenty of potential upside.”

Silver prices hit a 13-month high of $17.01 an ounce earlier today, and September Comex silver prices were last up $0.50 at $16.945 an ounce.

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