Precious Metals News Roundup
20% return anyone? Gloom Boom Doom author tells you where is the money
Faber said investors would make more money in EMs than in the US over next few years.
ETMarkets.com| Updated: Aug 19, 2019, 08.14 AM IST
Investors should lower their long-term return expectations from the equity market, says Marc Faber, renowned global investor and author of The Gloom, Boom & Doom report.
“If you are a prudent investor, then you are not going to make a lot of money in equities over next three years,” he said in an interaction with ETNOW.
He advised investors to start accumulating gold from a long-term perspective amid global growth concerns and heightened trade tensions. Faber expects gold rise about 20 per cent over next 2-3 years. He said most of the commodities do not have a structural bull market.
“Gold is not an industrial commodity and it does not depend on demand from China. It depends on investor sentiment towards gold and central banks’ monetary policies. If they print money, then it is likely that the price of yellow metal will go up in the long run, while in the short run, it does not have much of a correlation,” Fabre said, adding that the commodity has bottomed out.
“Timing is very important if you invest in commodities,” Faber said, and added that he is also bullish on agricultural commodities including soy bean, corn, wheat and coffee.
Commenting on the investment opportunities available and the ongoing trade war between the US and China, Faber said investors would make more money in emerging economies than in the US over the next few years.
He said no one is a winner in the trade war and investors need to pay attention to worsening geopolitical tensions too.
Financial markets have recently been signalling the possibility of a US recession, creating anxiety among investors, companies and consumers.
“Trade war will hinder economic growth,” he said. Faber said the trade tension is favourable for China in the long run.
He also believes India and China would grow with a proviso of peace. On the other hand, he is hoping for peace in global economies.
He highlighted that war-like conditions have always ended very badly for financial markets because they lead to a lot of defaults.
“In this case, I presume some countries would say that they are not going to pay and then it spreads and so we need to hope that there will be peace,” he said.
In recent months, the US Fed and 19 other central banks have already cut policy rates. With the Fed cutting rates, Faber expects the US dollar to be weaker in the next two years.
Hong Kong Unrest Sends Gold Investors to Seek Haven in Singapore
By Ranjeetha Pakiam August 18, 2019, 10:27 PM PDT
Escalating political turmoil in Hong Kong is spooking some gold investors.
J. Rotbart & Co., which helps customers buy, store and transport precious metals, says it has seen an increase in demand for gold storage in Singapore from new clients -- even when they’re based in Hong Kong or mainland China. In the last 10 weeks, the breakdown of requests has skewed to around 75% for Singapore and 10% for Hong Kong, compared with a split of about 50-35 previously, said Joshua Rotbart, who runs the bullion house, which services high net-worth individuals, from Hong Kong.
Protests that started in early June against a bill easing extraditions to the mainland have morphed into a broader stand against China’s rule over the financial hub. Demonstrators forced the city’s international airport to shut last week, and fears have grown that Chinese troops from the People’s Liberation Army may be deployed to restore order, a move that could risk an international backlash and irreparable harm to the city’s economy.
“Some clients are afraid of PLA intervention in Hong Kong, or of another closure of the airport, which will make it difficult to move their gold out of the city, as gold is shipped on commercial flights,” said Rotbart.
The city’s financial rivalry with Singapore is a feature of modern Asia but stretches back to their shared colonial past under British rule. Rotbart operates in both and also has an office in Manila. Rising violence in Hong Kong is likely to undermine investment there, according to Bloomberg Intelligence, with Singapore a probable beneficiary.
Capital flows -- for example, into real estate -- could divert to other Asian markets such as Singapore, while individual investors may shift wealth stored in Hong Kong’s insurance products to the city-state and elsewhere, BI said.
Gold, typically a haven in times of geopolitical or financial stress, has become even more valuable in recent months. Prices topped $1,500 an ounce earlier in August for the first time in six years as investors sought succor from Beijing’s trade war with Washington and a deteriorating global economy.
Investors Rush Into Havens as Growth Fears Persist
Portfolio managers are hedging their bets in case the argument for recession becomes clearer
By Amrith Ramkumar and Ira Iosebashvili Aug. 19, 2019 5:30 am ET
Investors are snapping up safer assets including gold, dividend-paying stocks and the Japanese yen, underlining anxiety over trade tensions and slowing global growth.
Major U.S. stock indexes remain near records, thanks in part to the continued strength of the U.S. economy. But some economically sensitive market indicators are signaling a downturn is ahead.
“The market mood is very uncertain right now,” said James Bianco, head of Chicago-based advisory firm Bianco Research. “There are a lot of things happening at once and investors are not sure what to make of them.”
The prices of rich-country government bonds have surged since July, sending yields in Europe to record lows and pushing the global stock of negative-yielding debt above $15 trillion. The world’s best-performing major currency is the Japanese yen, which has long been the go-to destination for nervous investors. Gold stands near a six-year high and has outpaced a double-digit rise in the S&P 500 this year—a confluence that has occurred just four other times in the past four decades.
Gold and stocks have both rallied this year.
Shares of real-estate firms, consumer-staples companies and utilities are the only S&P 500 sectors to have risen in the past month.
Investors tend to favor those sectors during rocky periods because of their relatively stable earnings and sizable dividend payments.
The shift to safer assets is the latest round in investors’ yearlong bout with fears that a global slowdown will end the decadelong U.S.
expansion. While the evidence so far favors continued economic growth, more portfolio managers are hedging their bets in case the argument for recession becomes clearer.
Investors this week will parse minutes from the Federal Reserve’s last meeting, with many expecting the central bank to continue lowering interest rates to brace the economy from trade tensions. Comments from Fed Chairman Jerome Powell at the central bank’s retreat in Jackson Hole, Wyo., could also swing markets.
Many investors believe that trade uncertainty may last for months or years, even after the White House said last week it would delay some of its most recent tariffs on Chinese imports until December. Other concerns center on the impact of Brexit, political friction in places including Italy, India and Korea, and violent protests in Hong Kong.
The decline in interest rates stands to be good for stocks, at least in the short term. Lower rates make shares look more attractive—the latest affirmation of the “There Is No Alternative” to stocks thesis known as Tina.
Yet many investors remain skeptical that lower interest rates around the world will spur a pickup in economic activity. Many also believe that the buildup of negative-yielding debt, particularly in Europe and Japan, and the plunge to near-record lows of U.S. Treasury yields mark potentially ominous signs for the world economy.
“People would have thought these low interest rates would spur growth, but they’re not,” said Robert Tipp, chief investment strategist at PGIM Fixed Income. “What that’s telling you is that interest rates may still be too high.”
Mr. Tipp holds long-dated bonds in his portfolio, which he expects to rise in price as rates fall.
More fund managers are bullish on bonds than during any other time since the financial crisis, a Bank of America Merrill Lynch survey conducted Aug. 2 to Aug. 8 showed. More than a third of those polled believe a recession is likely in the next 12 months, the highest in nearly eight years.
Investors’ fears help explain why both gold and stocks are up more than 15% in 2019, something that has only occurred two other times in the past 40 years, according to Dow Jones Market Data.
Some investors are choosing to weather trade uncertainty by turning to U.S. stocks, which are perceived to benefit from the relative stability of domestic growth and ultralow interest rates around the world. The S&P 500’s dividend yield recently eclipsed the 10-year Treasury yield, and shares of consumer-products firms including Kellogg Co. and General Mills Inc. have been among the beneficiaries.
Other investors believe the signal from the gold rally is stronger.
“It’s too early to say that global growth is going to turn around,” said Aron Pataki, a portfolio manager at Newton Investment Management, which has increased positions in havens such as gold in recent months.
Aided by low interest rates, markets have repeatedly overcome past bouts of economic worry to continue climbing, including in 2011, when gold rose to a record near $1,900 a troy ounce.
Low bond yields also benefit gold because they make the metal, which doesn’t generate any income for holders, more attractive to yield-seeking investors.
“People are just looking for stability,” said Michael Hans, chief investment officer at Clarfeld Citizens Private Wealth.
Fund managers surveyed by Bank of America are also holding more cash than they have on average in the past decade. And hedge funds and other speculative investors have lifted bets on continued gains in gold and the yen, figures from Scotiabank and the Commodity Futures Trading Commission show.
“A lot of people just don’t like volatility, so they are looking for ways to find a buffer against the market,” said Mariann Montagne, a portfolio manager at Gradient Investments, which has been favoring gold recently. “We don’t think we’ve seen the last of the gyrating trade tweets.”
Degussa Sees Gold Prices Pushing To $1,690; Silver To $23 By 2020
Neils Christensen Monday August 19, 2019 15:45
With gold trading closer to its fair value and embarking on a new bull market, one European precious metals firm is increasing is long-term forecast for the yellow metal.
In their latest research report, published last week, Degussa analysts said that they are increasing their price target for the yellow metal, calling for a rally to $1,690 an ounce by the end of 2020. At the same time, they see silver prices rallying to $23 an ounce.
The gold market is currently seeing some technical selling as investors continue to take profits following last week’s push to a fresh six-year high; last week silver prices reached nearly a two-year high. However, analysts remain optimistic on gold and silver’s uptrend as initial support hold at $1,480 and $16.80 an ounce, respectively.
December gold futures last traded at $1,505.80 an ounce, down 1% on the day; meanwhile, September silver futures last traded at $16.86 an ounce, down 1.5% on the day.
The analysts said that the threat of a global recession due to the ongoing trade war between the U.S. and China will continue to keep a bid under gold; however, they added that global monetary policy easing is what will drive prices higher.
The analysts said that the Federal Reserve’s rate cut in July has heralded a new global easing cycle with the European Central Bank expected to join the trend next month.
“With the world’s interest rates heading to zero or even below zero, official currencies can no longer be viewed as a reliable store of value,” the analysts said in their report. “With market interest rates at or below zero, and consumer and asset price inflation continuing, cash and liquid bank deposits will lose their purchasing power.”
Last week, Finnish central bank governor Olli Rehn said that the ECB is looking at releasing a significant easing package at next month’s monetary policy meeting.
In the U.S., economists and analysts are expecting that Federal Reserve Chairman Jerome Powell will set the stage for another rate cut in September. CME FedWatch Tool shows that markets all but expect a rate cut; there is a 5% chance that the central bank cuts by 50 basis points.
U.S. Budget Gap Set to Top $1 Trillion in 2020, Two Years Sooner Than Expected
By Katia Dmitrieva August 21, 2019, 8:00 AM PDT
The U.S. budget deficit is set to widen to $1 trillion by fiscal year 2020, two years sooner than previously estimated, according to the Congressional Budget Office.
The deficit will expand faster than thought after recent legislation that raised spending levels, according to the the non-partisan group’s annual budget outlook released Wednesday. That effect was somewhat moderated by the expectation of lower interest rates, which reduces borrowing costs.
It would be the first time the deficit exceeded the $1 trillion mark since 2012, as the economy recovered from the financial crisis. The deficit breaching that threshold would come as President Donald Trump runs for re-election.
Economic growth will expand at a 2.3% pace in the fourth quarter this year, followed by 2.1% next year, up from the agency’s prior estimate of 1.7%. After that, growth will slow to about 1.8% through to 2029, the CBO said.
“Partially offsetting the budgetary effects of new legislation are revisions to our economic forecast, which pushed down deficit projections,” said CBO Director Phillip Swagel in a statement.
Economists are increasingly warning that a recession may be on the horizon, with a key segment of the yield curve briefly inverting last week in what’s historically presaged a recession. The odds of a U.S. downturn in the next 12 months rose to 35% in Bloomberg’s August survey of economists, from 31% forecast previously.
The growing U.S. debt load could add to strains on the economy, now in its longest expansion on record. It’s a troubling factor amid Trump’s ongoing trade war with China that’s delaying some investment, an increasingly gloomy consumer, and slowing global growth.
“The nation’s fiscal outlook is challenging,” Swagel said in the statement. “Federal debt, which is already high by historical standards, is on an unsustainable course, projected to rise even higher after 2029 because of the aging of the population, growth in per capita spending on health care, and rising interest costs.”
$1 Trillion Deficit
The budget deficit will widen to $1.01 trillion over the 12 months through 2020, from an expected $960 billion this year. The CBO said in January that the shortfall would come in around $890 billion next year and wouldn’t top $1 trillion until fiscal 2022.
As a share of GDP, the deficit is forecast to increase to 4.6% next year from 4.5% this year.
The deficit has expanded under Trump, amid the Republican‘s $1.5 trillion tax cut package, increased federal spending and an aging population that’s boosting the cost of social programs like Medicare. Trump said recently “a lot of people” would like a cut in payroll taxes and he’s floated the idea of a capital gains tax break, as his administration examines ways to juice the economy.
The U.S. last ran a deficit bigger than $1 trillion between 2009 and 2012, when former President Barack Obama ran a large bailout for the financial markets and a stimulus plan to yank the country out of the financial crisis.
Even the Big Banks Drum Up $2,000 Gold Prices Now
By Moe Zulfiqar, B.Comm. | August 22nd, 2019
Big Banks Turn Super-Bullish on Gold Prices
Gold has done very well so far in 2019, and things could get a lot better in the coming months.
You see, even the big banks are saying gold prices could go much higher. They are the ones who turned bearish on the yellow metal in 2013, and that led to a massive sell-off. Now they are favoring a $2,000-an-ounce gold price.
In 2013, investors listened to the banks’ bearish take on gold and acted upon it. If those banks are turning bullish on gold now, won’t regular investors follow their lead?
These Big Banks Making a Bullish Case for Owning Gold
Here’s some perspective on what the big banks are saying about gold.
Daniel Ghali, commodities strategist at TD Securities recently said this: “We do think gold is on its way higher for the time being…Over the coming years as the likelihood of the unconventional policy becomes more of a reality, I could see a case for gold at $2,000.” (Source: “Gold could hit $2,000 in a world full of negative yields,” CNBC, August 13, 2019.)
Bank of America Corp (NYSE:BAC) is drumming for higher gold prices as well.
In a note to clients, Bank of America’s metals strategist Michael Widmer said, “At the same time, and perhaps perversely, such a sell-off may prompt central banks to ease more aggressively, making gold an even more attractive asset to hold. We have a relatively conservative 2Q20 forecast of $1,500/oz, but in this scenario, we see scope for gold to rise towards $2,000/oz.”
Goldman Sachs Group Inc (NYSE:GS), a bank notorious for calling gold a “slam dunk sell,” is now getting the gold fever as well. Analysts at the bank recently said that gold could hit $1,600 an ounce. (Source: “Goldman Sees Gold Prices Climbing to $1,600,” Bloomberg, August 7, 2019.)
But they didn’t just stop there. Analysts at Goldman Sachs also said, “If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold.”
Mind you, these are not the only big banks saying the price of gold could go much higher. The list of big banks that are bullish on gold is getting bigger on an almost-daily basis.
Mining Stocks Could Be Next Big Opportunity
Dear reader, I am not one bit surprised by what the big banks have been saying. What they’re saying now, I have said several times over the past few years.
I expect the big banks’ bullish sentiment to drive buying in the gold market. This could be really good for gold. The investors who ditched the yellow precious metal back in 2013 could come back again.
With all this happening, I believe the biggest returns will come from mining stocks. As gold prices increase, mining stocks could also surge.
The price of gold has increased about 20% year-to-date. At the same time, several mining stocks have more than doubled. Imagine what would happen to mining company shares if gold hits $2,000 an ounce?
Central Banks Are Purchasing Gold at Record Highs. Why?
The World Gold Council reported that central banks bought a historic high of 374.1 tons of gold this year.
Thursday, August 22, 2019 Nicholas Anthony FEE.org
The World Gold Council reported that central banks bought a historic high of 374.1 tons of gold this year. While this move accounts for only 16 percent of total gold demand, it offers an inside look into the minds of the central bankers. It was only seven years ago that a survey of economists revealed significant disagreement with regard to the potential benefits of a gold standard. Do central bankers not agree with leading academic economists or is a different motive at play?
The Evolution of Money
The history of money has featured coins made from precious metals, privately issued IOUs that could be redeemed for precious metals, and government-issued IOUs that could similarly be redeemed for precious metals. Many have speculated that cryptocurrencies are the next step in this evolution, but could it be gold that is looming over the horizon?
It was only relatively recently that fiat money came into use.
Many have speculated that cryptocurrencies are the next step in this evolution, but could it be gold that is looming over the horizon? Although the history of money has trended toward greater degrees of government control, this new trend of gold accumulation raises many questions.
Is a Gold Standard Feasible?
In the Cato Journal, Lawrence White explores how the world might transition to a new gold standard. He notes two possible paths. First, a parallel gold standard could be allowed to grow alongside the current fiat currency. Alternatively, there could be a transition date in which a currency is then defined as some amount of gold.
While network effects require a painful inflation to occur for fiat currencies to lose their incumbency advantage, White explains that the second path offers an opportunity for a smooth transition.
For the switch to be effective (i.e. not cause inflation or deflation), the new parity will need to be based on the current price of gold. In one case, the Russian currency is the ruble. The ruble currently trades at 100,826.22rubles per ounce of gold. With the Russian money supply around 9,339 billion rubles, the country would need to purchase 92,624,716.07 ounces of gold.
That number looks menacing, but a quick conversion cleans it up. With 32,000 ounces in a ton, that number becomes 2,894.52 tons. And this is a maximum amount that would be required with a 100 percent reserve ratio, not the historical ratios observed under both private and government banking. At a 20 percent reserve ratio, the requirement drops to only 578.9 tons! In terms of feasibility, that is less than 1 percent of the world supply of gold.
A Golden Hedge?
Rather than implementing a gold standard, it is also possible these countries are looking to insulate themselves from the US economy—a difficult prospect. When Adam Smith wrote The Wealth of Nations in 1776, one could get their investments out of a country with a few days’ horse ride. Unlike the majority of tasks over time, this has become much more difficult.
Russian President Vladimir Putin called for an increase in gold purchases as part of a “fiscal fortress” policy.
The global economy is more integrated than ever, and this integration hit center stage when the Great Recession rippled across the globe. With the US dollar on one side of most trade and utilized as a base in the majority of currency exchanges, there is little escape from the US economy.
For this reason, China has made calls for an IMF currency to replace the dollar as a global reserve currency. It is possible, due to the lack of traction this policy recommendation has received, that they simply decided to enact safeguards by investing in the original global reserve currency. In addition, Russian President Vladimir Putin called for an increase in gold purchases as part of a “fiscal fortress” policy of high reserves and low external debt.
Could Gold Be a Signal?
One last consideration lies in the state of modern international trade. Whether gold is being accumulated as a currency or an asset, the movements have not gone unnoticed. With hostility growing in the US-China trade war, it is possible the purchases are being made for leverage.
In game theory, opponents can make threats and promises, but this is mostly considered cheap talk. There’s no cost to say it and there is no cost to receive it. So, why not do it? It is for this reason that no player will change what their strategy is in response to cheap talk. However, signaling is a different matter. A credible signal is costly and separates the aces from the jokers.
Accumulating gold is a costly, credible signal.
In the case of the US-China trade war, China could use gold holdings to dump the dollar. If so, the US would incur a cost much higher than the revenue from tariffs levied on Chinese businesses and American citizens. By accumulating these holdings, China signals that coordination is a better long-term policy.
The classical gold era featured lower mean inflation, smaller price level uncertainty, global network benefits, and fiscal discipline. These benefits are undeniable and enough to warrant a monetary authority’s attention. However, this is not to say it is the only thing worth their attention. The danger in leaving economic theory and entering practice is that there is an entire world full of complex dynamics to account for. Whether recent gold accumulation is merely a demonstration of political weight to leverage trade policy, a hedge against market turbulence, or a move toward a new gold standard is yet to be seen.
Gold Rallies to Highest Finish Since 2013 -- MarketWatch
By Myra P. Saefong And Mark DeCambre MarketWatch
Updated Aug. 23, 2019 3:40 pm ET | WSJ Pro
Gold futures rallied on Friday after China announced a round of retaliatory tariffs against U.S. products, prompting the precious metal to move up for the week and post a fourth consecutive weekly climb.
China said it was preparing to raise tariffs in two batches on $75 billion in U.S. imports on Sept. 1 and Dec. 15, which would coincide with the dates that Washington is slated to increase import duties on some $300 billion of Beijing goods. President Donald Trump responded with a series of tweets, in which he said he “hereby ordered” U.S. companies to begin looking for alternatives to China and said further measures would be announced later.
The escalating trade war “helps to play into placing more pressures on the [Federal Reserve] to be more accommodative and easy during the growing rise in trade wars in the coming months, so gold will benefit from this into next week,” Peter Spina, president and chief executive of GoldSeek.com, told MarketWatch.
Comments from Fed Chairman Jerome Powell at the Jackson Hole Wyoming, economic policy symposium, meanwhile, sounded “accommodative to easier monetary policies” going forward, and lower interest rates would be bullish for gold, said Spina. “When and how fast still seems unclear so the market may no respond too bullishly just yet.”
Still, “it is becoming more clear that with the tariff/trade war escalation[ and] monetary devaluations globally with a global slowdown, they are being forced to be more accommodative going forward,” he said.
December gold climbed by $29.10, or 1.9%, to settle at $1,537.60 an ounce, flipping its weekly performance away from a loss to a rise of 0.9%, based on last Friday’s settlement for the most-active contract, FactSet data show. The settlement was the highest since April 2013.
The apparent escalation of the tariff battle squelched risk appetite and overshadowed bullish comments from St. Louis Federal Reserve President James Bullard who said that further insurance cuts are needed to combat economic weakness outside of the U.S.
China news also drove benchmark bond rates, which compete with gold for haven demand, helping to support bullion buying. The 10-year U.S. Treasury note was at 1.5115%, down 9.1 basis points. Bond prices rise as yields fall.
Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch that yields could be a big catalyst for gold in this environment. “If bond yields [do] not rise and/or remains near zero, then gold prices will rise to $1,528 and $1,542,” he said.
A turn lower in equities and the dollar also helped buttress gold prices. The ICE U.S. Dollar Index , a measure of the dollar against six major currencies, was down 0.5% as gold future settled Friday. A weaker dollar can boost demand for commodities priced in the currency.
Powell, meanwhile, in his speech at Jackson Hole, said he and his colleagues were trying to assess “this complex, turbulent picture” that has emerged in August, and that “our challenge now is to do what monetary policy can do to sustain the expansion”
The Fed lowered its benchmark rate to a range between 2% and 2.25% back in July and has another policy decision on Sept. 18, with market expectations running high that another quarter-of-percentage point cut will be delivered amid signs of weakness in the U.S. economy, a slide in bond rates and an inversion of the closely watched spread between the 10-year U.S. Treasury and the 2-year Treasury note . An inversion of the yield-curve of that spread occurred earlier this week; the phenomenon has been an accurate predictor of recessions.
“Gold is likely to be most volatile during FOMC meetings and days (like today) when we receive a barrage of tweets from President [Donald] Trump and headlines concerning global trade,” said Matthew Miller, equity analyst at CFRA Research. “The news regarding China’s trade retaliation and [Trump’s] multiple tweets attacking the Federal Reserve are overshadowing” the Jackson Hole gathering, he said.
Among other metals, September silver rose 3.73 cents, or 2.2%, to $17.413 an ounce, tacking on around 1.7% from a week ago. September copper lost 2.75 cents, or 1.1%, to $2.53 a pound, down 2.5% for the week. October platinum shed $6.60, or 0.8%, to $855.30 an ounce, for a weekly rise of 0.5%, while September palladium settled at $1,454.30 an ounce, down $30.90, or 2.1% in Friday dealings, with prices still up about 0.9% from a week ago.
SPDR Gold Shares (GLD) was up 1.9% as gold futures settled, set for a weekly rise of 0.9%.