Precious Metals News Roundup

Week of August 26 - August 30, 2019

Gold breaches $1,550 mark for first time in over six years on trade jitters

Brijesh Patel August 25, 2019

(Reuters) - Gold jumped more than 1% to surpass the $1,550 per ounce mark for the first time in more than six years on Monday as investors flocked to safe haven assets driven by the heightened U.S.-China trade dispute.

Spot gold was up 0.3% at $1,531.20 per ounce as of 1153 GMT, after hitting its highest since April 2013, at $1,554.56 earlier in the session.

U.S. gold futures were up 0.1% at $1,538.90.

“This is all about the trade tensions and the related risk of global slowdown or even a global recession that is driving investors to safe-havens,” said Julius Baer analyst Carsten Menke.

“There is doubt in markets about these trade talks, so benefit of doubt or the leap of faith is not provided by financial markets anymore when it comes to the trade topic, which will be supportive for gold.” 

 

Washington announced last week an 5% additional duty on $550 billion in targeted Chinese goods, hours after China had unveiled retaliatory tariffs on $75 billion worth of U.S. products.

However, offering limited respite and limiting gold’s advance, U.S. President Donald Trump on Monday said China had contacted Washington overnight to say it wanted to return to the negotiating table.

 

While European stock markets recovered slightly following Trump’s comments, sentiment remained fragile as the heightened tensions sent investors scrambling into government bonds and whacked emerging market currencies. [MKTS/GLOB]

 

“The thinking might be that there is a little bit more positive sentiment now on the trade front, so people may be taking some profits, there are too many longs in the gold market,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.

 

Meanwhile, Federal Reserve Chairman Jerome Powell on Friday said the U.S. central bank will “act as appropriate” to keep the economy healthy, although he stopped short of committing to rapid-fire rate cuts.

 

The markets are fully priced for a quarter-point cut in rates next month, and over 100 basis points of easing by the end of next year.

 

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

Reflecting increased investor interest in gold, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.6% to 859.83 tonnes on Friday. [GOL/ETF]

 

Elsewhere, silver jumped 1.2% to $17.61 per ounce after hitting its highest since September 2017 at $17.77 earlier in the session.

 

Platinum gained 0.9% to $860.90 an ounce and palladium climbed 1% to $1,475.10.

 

Reporting by Brijesh Patel in Bengaluru. Editing by Ed Osmond and Louise Heavens

UBS Says It’s Staying Long Gold as Price Now Destined for $1,600

Ranjeetha Pakiam, Bloomberg News

(Bloomberg) -- Gold will extend its winning ways as the U.S.-China standoff harms growth, risking a deeper slowdown and inviting more central-bank easing, according to UBS Group AG, which jacked up price forecasts with a prediction the precious metal may hit $1,600 within three months.

“The trade war between the U.S. and China has escalated to a new level,” Giovanni Staunovo and Wayne Gordon, analysts at the wealth-management unit, said in a report received on Monday. “Gold has demonstrated its safe-haven qualities and we stay long the metal, a trade we initiated in mid-May.”

Gold is proving its worth as a haven this year as the two largest economies trade blows, with a significant escalation on Friday, followed by more hard-line remarks from President Donald Trump over the weekend. The Federal Reserve reduced interest rates last month as risks mounted, and some U.S. policy makers have stepped up their warnings about the outlook in recent days.

Futures rallied as much as 1.8% to $1,565 an ounce on the Comex, the highest since 2013. After its revisions, UBS has a three-month trading range of $1,450 to $1,600, plus a six-month forecast of $1,600 and 12-month view of $1,650. Previously, both the half-year and 12-month outlooks were set at $1,500.

To contact the reporter on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Jake Lloyd-Smith

World needs to prepare for return to gold standard as Washington disrupts financial order

Source:Global Times Published: 2019/8/25 21:08:39

The safe-haven property of gold has fully manifested in recent weeks. Spot gold hit $1,535.11 an ounce on August 13, the highest level since 2013.

I believe the gold price could reach as high as $1,800 an ounce in the future, and in the meantime, there will be increasing discussions about the world's return to the gold standard. The global market structure has been undergoing tremendous changes these days. The US has been pulling itself out of the multilateral arena for the purposes of protecting and enhancing the value of its own market space. As a result, signs of structural adjustments in the world market have become increasingly evident, but are still far from raising the general attention of the global financial community. In fact, many people still hope that such structural adjustments won't happen, so the market can go back to the old days.

Yet, it's impossible to go back to the past because the structural adjustments are based on global capital surplus and severe overcapacity, which could cause serious world economic and financial crises.

So what would be the outcome?

The most significant change is a return to the gold standard. As capital surplus and overcapacity have exerted great pressure on the world market space, the world financial system is also trying to adapt to the huge change which is centered on the status of the dollar. From the perspective of the global financial system, the dollar is a super currency that has a strong backing of global geopolitics. 

The status of the super currency is supposed to be unshakable, but the problem is that the US itself wants to give up this status and pursue a future characterized by US President Donald Trump's freestyle, thereby leaving the world market in uncertainty.

What will "post-dollar era" currencies look like? What currency can replace the status of the dollar?

In fact, this will be a process of continuous trials. It would be hard for the Bretton Woods Conference to succeed in the current era, so the new super currency has to be selected through extensive experimentation. 

First of all, digital currencies. Governments in various countries are making efforts in this regard, and market forces have also cultivated various digital currencies like Bitcoin and Libra. But they are far from being universally recognized and trusted by the global markets, and they are also far from winning the support of major economies. 

Second, regional currencies including the euro. Politicians around the world actually missed many opportunities after World War II, because world politics seriously disrupted global financial order, but no one would admit it. The result is the weakening status of regional currencies, like the euro.

Then what's left is the gold standard. After the collapse of the Bretton Woods System, the questioning of the gold standard has never stopped. The gold standard essentially represents a world financial order. When an old financial order faces collapse, it is necessary to create a new financial order. When the US decoupled the value of the dollar from gold, it actually committed to take on the responsibility of world finance, based on which a new financial order was formed. It is this financial order that has allowed the US to enjoy huge development dividends. Now, the US is unwilling to continue assuming and fulfilling such responsibilities for the current world financial order, and Trump has continuously intervened in the operation of the Fed and global financial market order. This development points to the necessity of seeking and building a new financial order, which is the fundamental basis for the re-emergence of the gold standard in the world financial market.

So the gold standard is an effort by the world market and financial system to balance the "Trumpian future." It means that the US can take its own path and Americans will have the right to look after themselves, but other countries around the world will also have the right to make their own choices. In other words, this will be a process of rebalancing in the world financial market, forcing the US to face up to problems. It needs to make a choice: fulfill the obligations and responsibilities for international finance, or abandon the international status of the dollar, thus allowing the dollar to become a common currency.

These are simply judgments and projections made from the perspective of geo-capitalism. For the US, the gold standard is a choice that cannot be avoided. The existence of the choice matters a lot. Countries around the world would take back their gold reserves stored in the US, and there remains a big question mark over the US' response. Central banks would increase their holdings of gold reserves to prepare for the return of the gold standard. Gold prices will rise, and dollar assets and energy prices will also be affected.

Besides that, the most important thing is whether the US is willing to accept any big change or wants to return to the old financial order and abandon its current path. It remains to be seen and requires time and observation.

The article was compiled based on a report by Beijing-based private strategic think tank Anbound. bizopinion@globaltimes.com.cn

 

 

Fed’s Jerome Powell Says More Rate Cuts are Possible; How Will This Affect Gold?

August 24, 2019 Sam Bourgi Commodities

Slowing global growth and trade-war hysteria could give the Federal Reserve more justification to lower interest rates in the coming months, Chairman Jerome Powell saidFriday in a highly-anticipated speech at the annual Jackson Hole Symposium. Powell’s comments came just as U.S. stock prices experienced another brutal selloff, wiping out gains for the week and driving investors into the safety of gold and other haven assets.

As gold enters a new bull market, investors are wondering how Fed policy will impact the digital asset. The truth: We don’t know for sure because there’s not much solid correlation between the federal funds rate and bullion. However, there’s good reason to believe the next easing cycle will be bullish for gold.

Interest Rates and Gold Prices

While conventional wisdom states that interest rate increases are bearish for gold because they increase demand for the U.S. dollar and fixed-income securities, history paints a different picture. As Investopedia notes, gold’s massive bull market began in the 1970s and continued for many years during a period when interest rates were high and rapidly increasing. Although gold prices increased in the 21st century while interest rates were in decline, there’s no sustained correlation between the two events.

In other words, gold has experienced bull markets when rates rise and fall, so it’s not enough to just look at monetary policy.

In the current macro climate, rate hikes are utterly inconceivable. The Federal Reserve tried them last year before realizing that a debt-fueled economy cannot survive higher borrowing costs.

 

The Fed appears keen on letting the debt bubble continue to grow, so it won’t raise interest rates again for a long time (if ever). Policymakers not only slashed rates last month for the first time in over a decade, they will likely do so again in September.

In an environment where monetary easing is required, perhaps indefinitely, gold is likely to benefit as a safe-haven investment. Every rate cut by the Fed, ECB or RBA is an admission that local economies are not performing up to par and that developed nations cannot survive rate normalization.

Lower interest rates also fuel inflation by increasing the money supply. Governments and central banks vastly understate inflation through their consumer price indexes. Gold is a hedge against inflation.

Then there’s the elephant in the room: Negative-yielding government bonds have reached a record $16 trillion. If the next financial crisis is caused by the bond markets, gold is likely to benefit as one the only reliable stores of value.

Velocity Of Money And Gold

By Sunshine Profits (Arkadiusz Sieron) Aug 27, 2019 06:19AM ET

The velocity of money is declining. What does it mean for the gold market?

What is the velocity of money? It refers to how fast money passes from one holder to the next and is commonly defined as the rate at which money is exchanged from one transaction to another. Simply put, the velocity of money is the number of times one dollar is spent to buy goods and services per unit of time. It is the value of transactions (GDP) divided by the supply of money. For example, if the velocity is 2, it means that a $10 bill is financing $20 worth of transactions in a given period. Therefore, the higher the velocity of money is, the more transactions are occurring between people (and vice versa). This is why it is considered a good indicator of real economic activity.

Why we are writing about the velocity of money? The reason is that it is at its worst level since 1959. As one can see in the chart below, the velocity of M2 money has been systematically declining since 1997. And it plunged after the financial crisis, when banks and the private sector started hoarding cash.

The declining velocity of money partially explains why the Fed’s easy money is not helping the real economy. The U.S. central bank expands the money supply like mad, but people remain conservative and do not spend money, increasing their cash reserves instead. This is why the link between monetary policy and inflation has become loose recently.

Summing up, the velocity of money is declining. It should be positive for the gold market, as it indicates sluggish economic activity (the GDP grows slower than the money supply) and ineffective monetary policy.

Central Banks Just Love Gold and It's Going to Stay That Way

Bloomberg News

August 26, 2019, 8:48 PM PDT Updated on August 27, 2019, 1:18 AM PDT

  •  China has ‘plenty of room’ to increase its holdings, ANZ says

  •  Purchases have climbed amid global growth slowdown, trade war

A major gold-buying spree by central banks is likely to persist in the coming years, according to Australia & New Zealand Banking Group Ltd., which flagged the potential for further purchases by nations including China.

“In the current environment, where uncertainty in emerging-market currencies is high, we see good reason for countries like Russia, Turkey, Kazakhstan and China to continue to diversify their portfolios,” ANZ said in a note on Tuesday. Net buying by the sector is likely to stay above 650 tons, it said.

Central-bank accumulation of bullion has emerged as a increasingly important trend in the global market, offering additional support for prices that have rallied to the highest level since 2013 on rising demand. Authorities have been adding to reserves as growth slows, trade and geopolitical tensions rise, and some nations seek to diversify away from the dollar. Official purchases now account for about 10% of worldwide consumption, according to ANZ.

“The People’s Bank of China holds nearly 1,936 tons of gold, which equates to only 3% of its total foreign reserve holdings, giving the country plenty of room to increase its allocation,” ANZ said. China’s central bank expanded bullion reserves again in July, pressing on with a run that stretches back to December.

Spot gold traded at $1,531.45 an ounce on Tuesday after touching $1,555.07 on Monday, the highest in more than six years. The metal has surged 19% this year as the trade war flared up, bond markets signaled that a U.S. recession may be on the horizon, and the Federal Reserve cut rates.

Central-bank accumulation of bullion has emerged as a increasingly important trend in the global market, offering additional support for prices that have rallied to the highest level since 2013 on rising demand. Authorities have been adding to reserves as growth slows, trade and geopolitical tensions rise, and some nations seek to diversify away from the dollar. Official purchases now account for about 10% of worldwide consumption, according to ANZ.

“The People’s Bank of China holds nearly 1,936 tons of gold, which equates to only 3% of its total foreign reserve holdings, giving the country plenty of room to increase its allocation,” ANZ said. China’s central bank expanded bullion reserves again in July, pressing on with a run that stretches back to December.

Spot gold traded at $1,531.45 an ounce on Tuesday after touching $1,555.07 on Monday, the highest in more than six years. The metal has surged 19% this year as the trade war flared up, bond markets signaled that a U.S. recession may be on the horizon, and the Federal Reserve cut rates.

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