FIDELITY: It's now smart to hold some gold
TOM STEVENSON 21 JULY 2019 • 3:38PM
For years on end, the gold price is only of interest to the kind of people who stockpile tinned goods and Kalashnikovs. Then suddenly everyone’s wittering on about it. Interest in the precious metal tends to rise in those rare periods when someone you know has made money holding it. Well, the gold price has risen 23pc since last August and, guess what, it’s the talk of the markets right now.
Gold hit a six-year high last week as nervous investors focused on its safe-haven appeal at a time of heightened worries on several fronts. The shooting down of an Iranian drone in the Gulf reminded us of the potential for things to go badly wrong in the Middle East.
Then, a new record high for the S&P 500 started to look optimistic as earnings season disappointments confirmed what a challenge it will be for corporate earnings to justify today’s valuations. Meanwhile, the Fed is seemingly heading towards the start of a new easing cycle, threatening a weaker dollar and even more negative yielding bonds - both historically good for bullion.
No wonder, the gold-bugs are reheating their "told you so" schtick. And it’s not just the usual rent-a-cranks who are making the case for gold. Ray Dalio, founder of the $150bn investment firm Bridgewater Associates, is touring the TV studios talking about a "paradigm shift" in markets as central banks become ever more desperate and resort to measures that will devalue paper currencies against traditional stores of value like gold.
I can list plenty of good reasons not to invest in the yellow metal. It pays no income; it is expensive to store and insure; it has next to no intrinsic value; no real use beyond looking pretty; it’s extremely volatile; it’s a greater-fool investment, requiring another buyer to believe it is going higher; and its value was higher 40 years ago in real, inflation-adjusted terms.
And yet, a good case can be made that the last year’s rally in the gold price to about $1,450 an ounce has further to go. The first argument focuses on the balance of supply and demand. Unlike with oil, where both parts of the equation fluctuate, the gold price is all about demand as production is relatively stable.
This year, demand looks set to be the highest in four years as purchases for jewellery rise in the world’s two big gold consumers, India and China. Consumption of 4,370 tonnes this year will the highest since 2015, according to the Metals Focus consultancy.
The second case is technical. With no yield to measure, gold is as cheap or expensive as you think it is. This makes fundamental analysis difficult and investors therefore tend to rely on the charts for guidance. These are showing a clear break-out from the trading range in which gold has languished for the past five years or so. As chartists will tell you, the trend is your friend.
The third element in the bullish case is the outlook for the dollar as the Fed gears up to cut interest rates at the end of the month, perhaps by as much as half of one percent. That matters because it reduces the opportunity cost of holding gold - the less you can earn on a risk-free investment like cash or a government bond, the less reason there is not to hold yield-free gold.
The expected turn in the interest rate cycle, with some expecting US rates to head back towards zero, will only exacerbate the $13trn headache of negative yielding bonds. That’s how much is tied up in bonds where investors are prepared to accept a small guaranteed capital loss in return for the certainty of getting most of their money back in the future. In that environment, gold looks relatively attractive. It will be doubly so if lower interest rates weaken the dollar, reducing the cost of the metal to buyers outside the US.
Perhaps the best argument for holding some gold in your portfolio is its ability to reduce the risk that all of your investments will fall at the same time. It is a great diversifier, an increasingly important factor at a time when bonds and shares have started moving in lock-step as investors focus on the outlook for interest rates.
Whether you look at gold versus the economy or compared with the stock market, it marches to a different beat. And, as we have seen, the correlation with the dollar is negative - they move in opposite directions. The amount of gold that most investors are likely to hold will not offset a serious market correction, but it might take the edge off it.
So, if you are tempted to add a bit of gold to your investments, what is the best way to get an exposure? There are three principal ways. First, you can buy the metal itself, either as coins or bars. Given that you are probably buying gold in part because you don’t trust the system anymore, this has the merit of allowing you to touch your investment and reassure yourself that it is really there. The disadvantage is that, short of keeping it under your mattress, you will have to pay someone to look after it for you and insure it.
More realistically, you can invest in an ETF which actually invests in the metal itself or, preferably in my view, you can invest in gold mining shares, either directly or via a fund like Investec Global Gold. The advantage of investing this way is leverage.
Newmont Mining recently said its cost of production was about $900 an ounce, so every extra dollar on the gold price falls straight through to the bottom line. High fixed costs mean that, in a rising market, profits rise faster than the gold price itself. This gearing works both ways, of course, but if you don’t think the price is going up then you probably shouldn’t be investing in gold anyway.
Central Banks’ Gold-Buying Spree Is Far From Over, Poll Shows
Jul 19, 2019 13:57 Bloomberg
(Bloomberg) -- It looks like the gold-buying spree by central banks in the past decade will probably continue for a while yet.
In a survey of central banks conducted by the World Gold Council and YouGov, 54% of respondents expect global holdings to climb in the next 12 months amid concerns about risks in other reserve assets. Looking further ahead, two-thirds see gold’s share of reserves staying the same or rising in five years’ time.
Nations have expanded gold holdings by about 14% since 2009, with the hoard now valued at roughly $1.6 trillion. Nations from Russia to China to Poland have added to reserves as economic growth slows, trade and geopolitical tensions rise, and authorities seek to diversify away from the dollar. Bullion holdings rose by 651.5 tons last year, the most since 1971.
“This year’s survey signals another healthy year of central bank gold demand,” the WGC said in a report Thursday. “In the next 12 months, heightened economic risks in reserve currency issuing countries are seen as the main factor driving these purchases, but in the medium term structural changes in the global economy may also play a role.”
While top buyers like China and Russia have continued purchases so far this year, global reserves saw a small decline in March to May, data compiled by the International Monetary Fund show.
The WGC and YouGov received 39 eligible responses from 150 central banks contacted as of mid-June, up from 22 respondents last year.
The Commodities Feed: Investors Return to Silver
July 18, 2019 Ing
Silver surge: Silver prices have surged around 6.6% over the past week and have been quoted at a one-year high of US$16/oz this morning compared to around US$15/oz last week. Investors have been returning to silver because it has become so undervalued compared to gold in recent months, with the gold/silver ratio rising to above 93 last week. The gold/silver price ratio has softened since then to 88.6 currently though it remains well above the historical average of around 60. ETF investors have bought around 20mOz of silver since the start of the month with Total Known ETF Holdings of silver increasing to a two-year high of 546mOz, and not far away from the record high of 556mOz made in August 2017.
These are the 3 catalysts driving gold’s record rally
PUBLISHED MON, JUL 22 2019 4:10 PM EDT Lizzy Gurdus
The yellow metal is getting a green light.
After five years of being stuck in a trading range, gold prices have broken out in the last six weeks, igniting a rally to multiyear highs. Prices held near those highs Monday as investors awaited word from the Federal Reserve about whether the central bank would cut interest rates at its next meeting.
Better yet, with the Fed’s decision on deck, billionaires like Ray Dalio pounding the table and concerns about a global economic slowdown still gripping investors, experts see cause for gold’s run to continue.
“There’s three reasons” for why gold has popped in the last several months, said John Davi, founder and chief investment officer of Astoria Portfolio Advisors.
“One is you’ve got recession risks that have gone up. Two, you’ve had rates that have been trending lower,” he said Monday on CNBC’s “ETF Edge.” “And the third reason, if you look at 10-year real yields, [they’ve] gone from 1.2[%] to 25 basis points.”
These catalysts are all making owning gold quite cost-effective, said Davi, whose firm leverages ETFs in managing its clients’ portfolios.
“Overall, I think it doesn’t cost you a lot to own gold as rates go lower,” he said. “It helps diversification. It helps multi-asset portfolios. Since March 2009, [the] S&P ’s up 400%. Gold’s up, like, 50%. GDX [the VanEck Vectors Gold Miners ETF] is down 10%. So, I think the risk-reward is pretty attractive. ”
Dave Nadig, managing director of ETF.com, agreed that gold investments appear to be getting their groove back.
“We’ve had this sustained down market in gold miners’ stocks,” he said in the same “ETF Edge” interview. “That gave them the opportunity to close underperforming assets, to do some industry consolidation, which we’ve seen, and so we just had a technical breakout in GDX. This is something traders really pay attention to, so that puts a lot of tail wind behind this. I think either [the SPDR Gold Shares ETF] or GDX are a good way to play a sustained rally in gold. ”
For retail investors looking for a cheaper play than the SPDR Gold Shares fund, ticker GLD, which costs 40 basis points, Nadig offered another option: BAR, the GraniteShares Gold Trust, with a fee of 17 basis points for “the exact same exposure” as GLD, he said.
“It really just comes down to cost. Both of these are funds that simply take gold bars and stick them in a vault,” Nadig sad. “If you’ve got to day trade this, if you need to put 100,000 shares through fast, GLD, of course, is going to be your institutional favorite. If you’re a normal investor, you might be making a 5% allocation on a million-dollar portfolio, BAR is your bet all day long.”
GLD and BAR were flat by the end of Monday’s trading session and are both up about 11% year to date. GDX, which has notched a nearly 34% gain this year, climbed by less than 1%.
Gold Heats Up And Silver Joins The Race
Frank Holmes Contributor
Now that gold has broken through the $1,450 an ounce level, a six-high year high, the next big test is $1,500. And as I’ve said before, it can do this in the blink of an eye under the right conditions.
We may end up seeing those conditions emerge sooner rather than later.
Last Thursday, Federal Reserve Bank of New York President John Williams seemed to indicate that a rate cut could be expected later this month, saying that central bankers need to “act quickly” as economic growth cools. Although he later clarified his comment, claiming he was simply citing research and not forecasting central bank action, the price of gold jumped as much as 2 percent on the news before closing above $1,440 for the first time since May 2013.
Investors took some profits last Friday, knocking the price down around 1 percent after gold started to look overbought a day earlier. I would consider each pullback such as this a buying opportunity, though, because I believe the best is yet to come for the metal.
Ray Dalio seems to agree. In a lengthy post on LinkedIn—Dalio’s favorite platform for getting the word out—the billionaire hedge fund manager writes that he thinks we’re on the verge of a new economic paradigm shift and that central banks’ accommodative policies, from low rates to quantitative easing (QE), are unsustainable. To hedge against this, Dalio says, “I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.” Most investors are underweighted in gold, “meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset,” he writes.
As for silver, I’m pleased to see that it’s finally playing “catch up” to gold, its price having hit a 52-week high after an incredible six straight days of gains.
The Bullish Calls on Gold Continue
With gold having already broken out of its five-year trading range, is the best still yet to come? I believe it is. And I’m not alone. Read what some analysts and strategists have to say:
“The Fed is getting ready to cut interest rates, which should set in motion a multi-year bear market in the dollar,” write analysts at Alpine Macro in a research note dated June 28. A weaker U.S. dollar is one of three “key ingredients” for a bull market, according to Alpine Macro, the other two being a more accommodative Fed and rising geopolitical risks.
“The technical break above $1,400 an ounce is a positive sign,” the firm adds. “New all-time highs for gold should be seen in the coming years.”
World Gold Council (WGC)
“The prospect of lower interest rates should support gold investment demand,” the World Gold Council (WGC) says in its mid-year outlook. “Our research indicates that the gold price was higher in the 12 months following the end of a tightening cycle. Moreover, historical gold returns are more than twice their long-term average during periods of negative real rates—like the one we are likely to see later this year.”
Canadian Imperial Bank of Commerce (CIBC)
“We continue to see no signs of rate hikes on the horizon over the next several years, and historically have seen gold continue on an upward trajectory beyond the last rate cut,” writes CIBC in a note dated July 14.
The bank points out that in two previous gold bull market cycles—in the 1970s and 2000s—negative real rates were the main contributing factor.
“During the last two major periods when real rates stayed below the 2 percent level and actually ticked into negative territory, the gold price moved over 320 percent in the 1970s… and approximately 400 percent from 2004 to peak in 2011.”
Silver Prices Rally as Investors Seek Cheaper Precious Metals
Prices are on track for their best month since December and at highest in more than a year
By Ira Iosebashvili Updated July 24, 2019 5:38 pm ET
Investors are taking a shine to silver, as a soaring rally in gold puts the spotlight on the less-expensive precious metal.
Silver for July delivery closed up 0.9% at $16.55 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices have risen around 8.5% in July and are on track for their best monthly performance since December. They stand at their highest level in more than a year.
For silver bulls, the gains have been a long time coming. Investors largely ignored the metal in 2019, even as expectations of a Federal Reserve rate cut took gold to a six-year high.
Several factors are fueling silver’s rally. Both gold and silver become more attractive to investors when central-bank easing is on the horizon, as the metals struggle to compete with yield-bearing assets when rates rise.
Unlike gold, however, silver is used extensively in manufacturing, and its price has been depressed by fears of slowing global growth.
While those fears haven’t entirely dissipated, gold’s 11.3% year-to-date rise has sent some investors looking for cheaper alternatives, analysts said. Silver prices were still down for the year at the start of July, while gold prices had already notched a double-digit gain.
“There was a disconnect between gold and silver prices for a while,” said Edward Meir, a consultant at broker-dealer INTL FCStone. Lately, however, “there’s been a relative value rotation into silver.”
Prices of silver, which is a component of semiconductors, have also received a tailwind from signs of improving demand for the chips, Mr. Meir said.
Prices for silver—and other precious metals—have also enjoyed a boost from a spate of uneven global economic data that has bolstered the case for more central-bank easing.
On Tuesday, the International Monetary Fund said trade tensions are slowing the global economy more than earlier projections had anticipated. Real global economic growth will slow to 3.2% this year, 0.1 percentage point slower than forecast in April and down from 3.6% last year and 3.8% in 2017, the fund said in its World Economic Outlook, released Tuesday.
The dollar will likely be an important factor in how far silver and gold can extend their rallies this year, as both metals are denominated in the U.S. currency and become more affordable to foreign investors when the dollar weakens.
A comparatively strong U.S. economy has kept the dollar steady against other currencies this year, despite expectations of Fed easing. That could change if the economy weakens in coming months, forcing the Fed to cut at a quicker pace than anticipated.
In energy markets, U.S. oil fell 1.6% to $55.88 a barrel after the U.S. Energy Information Administration reported that domestic oil inventories fell 10.8 million barrels, leaving commercial stockpiles at the lowest level in nearly four months. Analysts said Hurricane Barry lowered production, skewing the data.
Brent, the global benchmark, fell 1% to $63.18 a barrel.
Gold Prices Pop After ECB Signals Plans to Ease Monetary Policy Along with Fed – MarketWatch
Gold has climbed 11 of the past 16 sessions
By Mark DeCambre, MarketWatch Updated July 25, 2019 9:18 am ET
Gold futures gained altitude, but were off their highest level, on Thursday after European policy makers indicated, as expected, their intention to unfurl easy-money policies along with the Federal Reserve. The environment offered an upbeat atmosphere for precious metals to gain.
August gold on Comex was up $3.90, 0.3%, at $1,427.20 an ounce, but had hit an intraday peak at $1,434.10, after rising 0.1% in the previous session, with the contract trading near the highest level since 2013. Gold has climbed 11 of the past 16 sessions, according to Dow Jones Market Data.
The European Central Bank at the conclusion of its Thursday policy meeting that it is preparing to cut short-term interest rates for the first time since early 2016 and possibly restart its giant bond-buying program, among other measures to jump-start economic growth in the region.
The announcement comes as the Fed is widely expected to cut interest rates by a quarter-of-a-percentage point at the end of its July 30-31 gathering next week.
The ECB policy measures follow signs of a weakening eurozone economy and some signs of cracks in the U.S. with data Wednesday showing that the IHS Markit flash U.S. manufacturing PMI fell to 50.0 in July from 50.6 a month earlier, marking the lowest level since September 2009.
“Gold should rise after the European Central Bank forward guidance suggested lower interest rates over the coming months,” Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch.
“On the technical front, spot gold needs to trade over $1430 till close to rise to $1449 and $1461. Key price to watch for gold is $1430,” he said.
Meanwhile, the euro was off 0.3% at $1.11 versus the U.S. dollar, while the pan-European Stoxx 600 was up 0.8% following the announcement. European bonds rallied, sending yields lower and dragging down yields on U.S. Treasurys. Rates for German bond 10-year paper , viewed as a proxy for the eurozone economy, plumbed fresh record lows, yielding negative 0.415%. Bond prices rise as yields fall.
A regime of lower rates can make precious metals, which don’t offer a yield, more attractive to investors.
Strong U.S. economic data out Thursday capped some of the gains for gold. A report on weekly initial jobless claims dropped 10,000 to 206,000 in late July, with the four-week jobless claims average falls 5,750 to 213,000. A report on durable-goods orders rose 2% last month, the government said Thursday, a higher increase than 0.7% forecast of economists polled by MarketWatch. However, a decline in May also turned out to be deeper than initially reported.
That said, market participants say the relatively healthy domestic data potentially diminish the likelihood of a more aggressive rate cut by the Fed next week.
This ‘long-neglected’ commodity is ready to roar, says Commerzbank
Published: July 25, 2019 9:40 a.m. ET
By BARBARAKOLLMEYER MARKETS REPORTER
Navigating your way around this hated bull market right now? Here’s what to do.
“Either stick with your positions or avoid this market,“ says Cracked Market blogger Jani Ziedins who added way too many people are “buying the pop and selling the dip” and giving money away in what should be a modestly profitable market.
That seems like some solid advice as the S&P 500 grinds out more highs. Investors will need to stay on their toes on a huge earnings day, with Amazon results due later and a European Central Bank press conference ahead (key rates were left unchanged).
Switching gears a little, our call of the day from Commerzbank says a “long-neglected” commodity has waked from a “deep slumber” and is ready to roar.
Silver SIU19, -0.85% hit a 13-month high last week and marked its eighth gain in nine sessions on Wednesday, reaching $16.626 an ounce.
The commodity is “still relatively good value as compared with gold, which is why we expect the upswing to continue,” Commerzbank analyst Carsten Fritsch, who bumped his year-end forecast to $18 an ounce, told clients in a note Thursday. Silver is up 6% year-to-date versus gold’s gain of 11%.
He says investors likely woke up to silver’s potential earlier this month — it hit the lowest level vis-à-vis gold since 1992. Money has been pouring into silver exchange-traded funds, while speculative financial investors have been betting on rising silver prices since mid-June, after bearish views from late May, Fritsch says.
“Silver is thus well on its way – like gold before – to freeing itself from a prolonged sideways trend,” said Fritsch. But to match what we’ve seen for gold this year, silver needs to reach $20, not seen since 2016. Hitting a six-year high like gold would mean $25 per troy ounce for silver, he added.
Gold settles higher after first read of U.S. second-quarter GDP
Published: July 26, 2019 4:31 p.m. ET By Mark Decambre MarketWatch
The yellow metal finished the week with a 0.5% lower, but the uptrend remains in force, analysts say
Gold futures finished Friday in positive territory, following the first estimate of second-quarter U.S. gross domestic product, which indicated the economy was healthy but slowing and might still warrant an interest-rate cut by the Federal Reserve.
August gold on Comex GCQ19, +0.21% added $4.60, or 0.3%, to settle at $1,419.30 an ounce, after the metal finished 0.6% lower on Thursday, marking its sharpest slide since July 5, according to FactSet data.
For the week, the precious commodity shed 0.5% based on the settlement for the most-active contract on July 19. It was the metal’s first weekly loss in the past three weeks.
Meanwhile, September silver SIU19, -0.01% lost 1.4 cents, or less than 0.1%, to close at $16.397 an ounce, a day after marking the sharpest daily slump since July 5. Gold’s sister metal registered a weekly gain of 1.2%. Silver has been on a tear, post three weeks of gains, including a 6.3% weekly rise last week.
GDP, the official report card on the economy, grew at a 2.1% annual pace from the start of April to the end of June, the government said Friday. Economic growth slowed from a 3.1% gain in the first three months of the year. Economists polled by MarketWatch had expected a 1.9% GDP reading.
Although, the reading was healthy, it did reveal some signs of weakness, particularly in business investment, amid the Sino-American tariff dispute, that might give the Fed cause to reduce borrowing cost at the conclusion of its two-day July 30-31 gathering next week, market participants said.
Notably, the report suggests that businesses will eventually cut jobs or reduce worker hours if growth doesn’t pick up.
“This morning’s GDP numbers and some of the other numbers suggest that the economy is not in imminent danger of slowing down, so I think that a quarter-of-a-percentage point” cut is likely, Peter Hug, global trading director at Kitco Metals Inc., told MarketWatch.
He said, however, that a “half-a-point cut is now off the table.”
On Thursday, markets retreated after the European Central Bank signaled that it plans to ease monetary policy. Although, the ECB was dovish some investors were disappointed that the central bank didn’t include immediate action or details of its likely efforts.
Still, metals experts say that gold’s uptrend remains in force because the ECB and Fed are likely to be cutting borrowing costs, providing a runway for gold to climb.
“Gold however should see buyers emerge as the Fed is coming with rate cuts because inflation risks are too high,” said Edward Moya, senior market analyst at Oanda in New York, in a Friday research note.
September copper HGU19, -0.50% shed 1.85 cents, or 0.7%, to end at $2.6850 a pound, with a weekly loss of 2.5%. October platinum PLV19, -0.61% fell $6.20, or 0.7%, to $867.8 an ounce, and has notched a weekly advance of 1.8%. September palladium PAU19, -0.29% gave up $2.90, or 0.2%, to finish at $1,531 an ounce, but logged a weekly climb of 1.5%.