China's gold reserves grow for 6th straight month
Source: Xinhua| 2019-06-10 09:49:41|Editor: Liangyu
BEIJING, June 10 (Xinhua) -- China's gold reserves rose for a sixth straight month in May, said the central bank Monday.
Gold reserves stood at 61.61 million ounces last month, up 510,000 ounces from April, according to a statement from the People's Bank of China.
The reserves were valued at 79.83 billion U.S. dollars at the end of May, compared with 78.35 billion U.S. dollars at the end of April.
While China is the world's biggest producer of gold, its holdings make up a small percentage of its total foreign exchange reserves.
China's foreign exchange reserves edged up 0.2 percent month on month to 3.101 trillion U.S. dollars at the end of May, official data showed.
Gold Outshines The US Dollar
June 6, 2019 Degussa Market Report
I always find it quite surprising that many people do not have a proper idea about the value performance of gold. So let’s take a closer look at it. In the period 1970 to 2018, for instance, the annual increase in the US dollar price of gold (per ounce) was 9.9 per cent on average. Subtracting the annual increase in consumer prices (which was around 4 per cent per annum on average), the real increase in the price of gold was 5.9 per cent per year on average. That said, gold’s long-term value performance looks pretty good. But how does it compare with its major competitor, the US dollar?
If you had held 1 US dollar in cash, your purchasing power would have dropped by around 85 per cent from 1970 to 2018. However, this might not be a fair comparison. For holding US dollar in bank accounts gave you an interest rate. So what did you earn if you had held, say, a US dollar bank deposit with a 3 month maturity? The answer: 1 US dollar would have grown (compounded) into 8.6 US dollar. The return of your Greenback holdings (before tax) would have been 4.6 per cent per year on average – which is only slightly higher than average inflation and much lower than the real increase in the price of gold.
So yes, gold has clearly outshined the US dollar in the long-term. In contrast to the US dollar, gold has not only proven its store of wealth function, it has also managed to raise its purchasing power over time. Ok, this may be water under the bridge. What about the future? Of course, the future is pretty much uncertain. But there are at least some factors which support the expectation that gold will continue to outperform the US dollar (or other unbacked paper currencies). Perhaps most important: There is no end in sight of the monetary policy of extreme low interest rates.
This will turn out to be a big support for gold, as the opportunity costs for holding gold decline; in the case of negative real interest rate there is actually a reward of holding gold (in terms of fending off permanent losses in the purchasing power of money). But gold is not only an effective insurance against the inflationary policies of central banks. It also provides the holder with an insurance against credit, or payment, defaults. This, in turn, should also be quite beneficial for the gold demand and therefore its price going forward.
Finally, the investor should take into account that the world’s monetary system, which is built on the US dollar, has become quite vulnerable to any further financial or economic shocks. The very high debt load in many countries could make the economies come crashing down if and when growth and employment falter. That said, central banks, perhaps more than ever, will do everything in their power to prevent the next crisis – with lower interest rates, even negative interest rates, and running the printing press.
In other words: The risk profile is clearly skewed towards a continuation of the debasement of unbacked paper currencies. In times of a world-wide currency crisis (a rather gloomy but not impossible scenario) investors can be expected to increase their demand for US dollar at the expense of other unbacked paper currencies. However, it is also very likely that gold would then be in high demand: Gold is insurance against the US dollar – which is, by the end of the day, an unbacked paper currency like any other, and it can be debased quite easily by central bank monetary policy. In fact, there is good reason to expect that gold’s value performance in the years to come will match, perhaps even exceed, the one seen in the last 50 years.
‘Buy the Dip’ Is Looking Risky But Wall Street's Doing It Anyway
By Cecile Gutscher June 10, 2019, 8:40 AM PDT
Greed is back but Fed rate cuts may not play out as hoped
BlackRock’s Rieder says yield grab may get ‘more intense’
From near-certainty on interest-rate cuts to signs of a detente in the trade war, investors see the makings of a spirited upswing. And the recipe for its potential downfall.
It’s the latest chapter in 2019’s unloved rally.
For now, plenty of traders see good reason to be bullish as the U.S. tariff reprieve on Mexico boosts global stocks and sends emerging-market shares toward their biggest increase since January. And why not? Dip-buying and front-running monetary stimulus have proved reliable strategies to outperform post crisis.
But it’s also cornering investors into a new quandary. With fierce conviction in markets that a U.S. easing cycle is nigh, the bar for the next Federal Reserve-driven tantrum in risk assets is looking dangerously low.
Add event risks like the G-20 meeting this month and the ever-present threat of fresh White House missives on trade, and even the most bullish money managers are hedging their bets.
“With expectations for cuts already substantial, the risk seems more two-way,” said Robert Tipp, chief investment strategist at PGIM Fixed Income. “Markets could see their ultimate easing as good enough, but there is also a significant risk that they disappoint, driving a risk-off trade such as in December 2018 when the Fed’s behavior was seen as unduly hawkish.”
Expectations of monetary easing were fanned by Friday’s U.S. report that showed hiring and wage gains cooling in May and downward revisions to payrolls. Then came President Donald Trump’s move to call off punitive tariff plans on goods from Mexico, spurring Monday’s global equity rally.
Futures signaled some 70 basis points of rate cuts in 2019 at one point last week. The potential hit to growth from tariffs to Group of Seven economies struggling to muster up inflation has put the fixed-income market on high alert, with key parts of the Treasury curve inverting and 10-year yields near multiyear lows.
“Let’s say the Fed cuts rates in June or July, is that enough if we get increased tariffs, is that enough to save the economy?,” said Constance Hunter, chief economist at KPMG LLP on Bloomberg TV. “I think there is a big question mark around that, I think there’s a strong possibility it’s not enough, and I think that is what is really freaking out the bond market.”
Preemptive cuts have a checkered history, strategists at JPMorgan Chase & Co. point out. Equities respond best when there’s already a strong underpinning to growth, like in 1995 and 1998. Overall, monetary easing has usually had a negative effect on corporate bonds, leading to wider spreads that persisted for an average six months after the first U.S. rate cut.
Only bonds and the dollar were clear winners: Treasuries continued to rally for as long as six months following a rate cut, according to JPMorgan strategists, while the greenback gained for as long as three months after.
Goldman Sachs strategists expect health care and consumer staples stocks would outperform on lower rates and tech to lag. Factors like momentum and low volatility should also be in favor, they wrote in a note Friday.
“This is going to be a grab for yield that is just going to continue, it may even become more intense,” Rick Rieder, BlackRock chief investment officer for global fixed income, told Bloomberg TV Friday. His firm likes call options to take advantage of an upswing in the S&P 500 and securities unloaded by forced sellers including high-yield bond ETFs.
Anastasia Amoroso, global investment strategist at JPMorgan Private Bank in New York, is treading carefully but sees no reason sit out the brewing risk rally.
“People just don’t know which way to turn because we don’t know what the next tweet is going to be,” she told Bloomberg TV. “It’s hard to make a call on this for the next 12 months but I think we can be positioning for a short-term upside here and a reversal in some of the sectors hit the hardest.”
Amoroso likes beaten-up emerging markets, credit and semiconductor stocks.
Thomas Thygesen, head of cross-asset strategy at SEB AB, warns the ebullient mood can quickly shift. If “it turns out in June they say in fact we’re not going to cut rates after all that will leave us with a negative shock still intact.”
Moreover, the underlying problems of weak growth can’t be solved with a quick-fix rate cut, he said.
“If the Fed deals with the trade war shock but they don’t do anything else that still leaves us with the same underlying story as beforehand,” said Thygesen. “And that story was global growth seems to be too weak to support expectations of an earnings rebound in the second half of the year which is what most estimates currently suggest.”
Morgan Stanley bear warns his bleak scenario for 2019 is taking shape
Published: June 10, 2019 4:35 p.m. ET By Shawn Langlois MarketWatch
Why are stocks busting out all of a sudden?
Last week, tariffs on Mexico increased the chances that the Fed would cut rates. Investors obviously like that. So, stocks rallied. This week, Trump backs off those same tariffs. Investors apparently like that, too. Stocks again are rallying.
Josh Brown of Ritholtz Wealth Management, please explain.
“The market wanted to go up. I don’t think it mattered what happened. We just use these things as a reason after the fact to look smart,” the CEO of the New York City-based investment advisory firm wrote. “That’s how it works. It’s not meant to be intellectually satisfying. It’s meant to take money away from people who think they can explain things. Worst traders and managers I know are the guys with answers for all this stuff. Get used to it.”
Instead of “after the fact to look smart,” let’s allow our call of the day to give some forward-looking flavor on where he believes all this is headed.
Mike Wilson — hailed across Finance Twitter as “Wall Street’s most bearish analyst” — says there’s one big risk out there for investors...
That he’s right.
“The macro and micro economic data continue to deteriorate,” Morgan Stanley’s chief investment officer wrote, pointing to weak durable goods orders, disappointing capital spending, soggy retail earnings, lackluster freight shipments, and a “very soft” jobs number as evidence of an economy running on fumes.
“This raises the risk of my core view playing out — that companies will do whatever it takes to protect margins,” Wilson wrote. “And while labor is the last lever they pull, they will use it if they need to.”
Don’t be so quick to blame U.S.-China trade tensions, either, he said. “The economy was already slowing and escalation potentially makes things worse.”
And if you’re waiting for a lower interest rates to ignite a rally... don’t.
“A rate cut after a long hiking cycle tends to be negative for stocks, in contrast to a pause like in January, which is typically positive,” Wilson said. “I’ve been vocal about the likelihood of U.S. earnings and the economic cycle disappointing this year. Specifically, I’ve argued that the second half recovery many companies have promised and investors expect is unlikely to materialize.”
He’s not seeing enough evidence to change his mind. In fact, Wilson’s team is looking for GDP to hit the skids in the second half.
“If you listen to what the markets have really been saying this year, they seem to agree with our view that growth will disappoint whether there is a trade deal or not,” he said. “Therefore, we continue to recommend investors stay defensively positioned... with overweights in areas like utilities and consumer staples.”
The Fear Gauge Is Sounding an Alarm Even as U.S. Stocks Surge
By Luke Kawa June 10, 2019, 12:01 PM PDT
Cboe Volatility Index is up over the past three sessions
It’s unusual for VIX to stay high while stocks rally
Remain vigilant. That’s the apparent message the Cboe Volatility Index is flashing, even as cash equities race toward records.
The VIX Index -- often referred to as the market’s “fear gauge” -- is up over the past three sessions, as of 1:40 pm. in New York. At north of 16, it’s implying that U.S. stocks will tend to move more than 1% per day over the next month. In recent years, it hasn’t lingered above this level unless equities were weakening.
The higher reading belied the brisk advance of more than 2% for the S&P 500 Index over the same three-day stretch. It’s the first time implied volatility has failed to decline amid stock gains of this magnitude since 2009, when the bull market was in its infancy. The two variables tend to move in opposite directions.
During Friday’s 1.1% advance in the S&P 500, the VIX -- which measures the 30-day implied volatility of the S&P 500 based on out-of-the-money options prices -- also moved higher. That’s despite the weekend effect that typically sees the gauge move lower on Fridays, and the passage of a market-moving event -- the May non-farm payrolls report.
This marked just the 11th time since 2004 that the VIX advanced while the stock benchmark rose at least 1%, according to Macro Risk Advisors derivatives strategist Vinay Viswanathan.
“The options market is unwilling to lower its pricing of risk further despite impressive market strength,’’ he wrote. “The stocks up/vol up move could be a sign from the option market that while equities were performing well, there is still plenty of risk worth protecting against (especially with China trade talks/G-20 lingering on the horizon).’’
The event premium built into options that encompass the month-end G-20 summit – at which U.S. President Donald Trump and his Chinese counterpart Xi Jinping are slated to talk trade -- is off its recent highs, Viswanathan notes. He recommends July put options on the S&P 500 as an opportunity for investors nervous about the outcome to purchase relatively cheap protection.
Pravit Chintawongvanich, Wells Fargo’s equity derivatives strategist, said in a note that the fierceness of market rallies is contributing to firmness in the volatility index. For the most part, U.S. stocks have taken the staircase down from a record close on April 30, and rebounded via the elevator.
“Up moves count as vol too, and have been pushing realized vol higher,’’ he wrote. “VIX actually looks low relative to realized vol.’’
On Monday, the signal sent by a relatively muted retreat in the VIX appears to be a mirage linked to the demand for upside. The most heavily traded options are S&P 500 calls that expire on June 21 with strike prices of 2,900, 3,000 and 3,100. It’s an indication that fund managers who missed most of the 2019 advance might be looking for a way to get exposure to further gains without worrying about losses should equities reverse lower.
Elizabeth Warren's Misguided Currency Plan Would Cause Gold Prices to Rally
Simon Constable Jun 11, 2019 11:30 AM EDT TheStreet
Warren's plan to boost exports by lowering the value the dollar has proven to be ineffective and even harmful. It would, however, send prices for gold skyrocketing.
Gold investors should love presidential hopeful Elizabeth Warren.
Her plan to lower the value of the dollar will likely cause inflation, capital flight, and a currency war -- any of which have the potential to boost gold prices. And if all happen together, then bullion will do even better.
If Warren eventually gets elected to the White House and then enacts that policy, investors should consider adding a large helping of gold bars to their portfolio. Alternatively, try buying the SPDR Gold Shares (GLD - Get Report) exchange-traded fund which tracks the price of the metal.
The U.S. Senator from Massachusetts says "managing" the value of the U.S. dollar could help boost exports.
Warren isn't alone. President Donald Trump has spoken about the topic also.
Underlying her plan is the idea that a lower value of the dollar would make U.S. goods cheaper on the world market and so help boost sales to foreign countries. The theory also says that the rise in exports would help slim down the trade deficit, which measures how much U.S. imports exceed exports.
Out of the Dustbin and Into the White House?
Still, the theory is nonsense because it doesn't work in practice.
It's an idea that most students of economic history have assigned to the dustbin as almost entirely harmful and ineffective. Nevertheless, Warren wants to recycle it, no doubt due to a lack of understanding on her part.
"For any politician to suggest we can solve our trade balance issues with a lower dollar is to suggest they have no idea what is driving both economics and financial markets," says Jeff Christian, managing director of New York-based commodities consulting firm CPM Group.
But Warren's misunderstanding could be to your benefit because her policy will almost certainly cause one or all of the following problems:
By definition, inflation means that the dollar in your pocket buys less than it had previously. Think of it like so: A lower value for the dollar means that anything you import from the world market will now be more expensive. Energy will be more expensive, as will foodstuffs and materials.
When inflation takes hold, then the value of gold tends to rise. In the 1970s, the U.S. saw massive levels of inflation, sometimes in the double digits. That period also coincided with a rally in the price of bullion from $35 a troy ounce in 1971 to $850 in 1980. That's more than a twenty-fold price increase.
2. Currency War
The next issue, which is no less problematic, is that pushing down the value of the dollar would likely prompt a currency war. They are like trade wars, only worse.
In simple terms, a currency war works like so: if one country devalues its currency so it can boost its exports, then the other countries will follow suit by doing the same, says David Ranson, director of research at financial research firm HCWE & Co.
"Competitive devaluations get you into a vicious cycle," he says. Or put another way, there is quickly a race to the bottom for the value of every currency.
Such tit-for-tat devaluations are more harmful than trade wars because in trade wars companies can shift their supply chains, Ranson says. Currency wars tend to be more pervasive and so envelop the entire global economy.
In such times, investors head for safe-haven assets.
"If the vicious cycle takes off, then the only winners are owners of hard assets like gold," says Ranson.
3. Capital Flight
The key to growing an economy is in attracting capital rather than scaring it away.
But rising inflation (a.k.a. a dollar devaluation) increases the so-called "cost of capital." That's a technical term that refers to the level of returns that investors demand before putting their money to work.
When devaluations are large and persistent, then the cost of capital can skyrocket. That tends to result in investors taking away their money. In other words, they won't want to invest in new factories or cutting-edge technologies.
Instead, they will seek alternative investments that have a history of maintaining their purchasing power.
"A weaker dollar is going to move people into better stores of value like gold and out of the stock market," says Robert E. Wright, professor of political economy at Augustana University in Sioux Falls, South Dakota.
The ‘Buffett Yardstick’ may be signaling the worst risk-reward setup ever
Published: June 12, 2019 3:30 p.m. ET By Shawn Langlois MarketWatch
Warren Buffett of Berkshire Hathaway BRK.A, +0.20% says it’s “probably the best single measure of where valuations stand at any given moment.”
The “Buffett Yardstick,” as longtime money manager Jesse Felder of the Felder Report calls it, plots the total value of the stock market against the overall size of the economy. What makes it so valuable, he says, is that it’s good at telling investors what to expect from equities going forward.
So what’s it telling them now?
Felder put the “Yardstick” (inverted) up against forward 10-year returns in the stock market in the chart below to create what he describes as the best representation of one of his favorite Buffett quotes: “The price you pay determines your rate of return.”
According to this measure, Felder says investors are paying such a high price for stocks that they are likely to receive basically nothing in return in the coming decade, and that includes dividends.
“At the same time that potential returns look so poor, the potential for risk may be greater than it has been in generations,” he wrote, pointing out that investors have been piling on margin debt lately to increase their exposure to an overheated market.
Comparing this rising margin debt to the size of the economy, Felder says, shows that investors haven’t been this greedy since 1929.
“All of this leveraged speculation must at some point be unwound, usually via forced selling during a bear market,” he wrote. “The last two times it came even close to the current level the stock market suffered 50% declines.”
Felder warned that this time around, the pieces are in place for an even bigger drop. “In all, long-term investors are risking roughly a 60% decline to try to capture a 0% rate of return over the coming decade in the stock market, one of the worst risk-to-reward setups in history,” he wrote in a blog post.
Billionaire Paul Tudor Jones says investors should bet on rising gold if Fed cuts rates
June 12, 2019 2:46pm ETF Daily News From Jeff Cox
Hedge fund billionaire Paul Tudor Jones thinks the Federal Reserve will be cutting rates this year.
He recommends bets on rates, gold and stocks and against the U.S. dollar.
Markets expect the Fed to ease two or three times this year.
Investors should start adjusting their playbook to get ready for a looming Federal Reserve interest rate cut, billionaire hedge fund magnate Paul Tudor Jones said Wednesday.
The recommended strategy will entail a bet on falling rates and rising gold, as well as against the U.S. dollar and “at some point” stocks “at least initially,” the Tudor Investment founder told Bloomberg News before an event sponsored by his nonprofit JUST Capital.
“I didn’t think we’d have a first cut in 2019,” Jones said. “I don’t think we would have had that had we not gotten into this tariff battle, and so it has accelerated everything.”
Indeed, markets are betting that the Fed enacts multiple rate cuts this year, with the first one likely in July, another in September and possibly a third as soon as December, according to futures pricing tracked by CME. That comes after a 2018 that saw the central bank hike its benchmark interest rate four times to a target range of 2.25%-2.5%.
Uncertainty over tariffs remains a key driver in the push for policy loosening, along with worries that the global economic slowdown will begin to have spillover effects in the U.S. President Donald Trump has pushed hard for a cut, telling CNBC earlier in the week that the Fed has been keeping monetary policy too tight.
Trump already has levied tariffs on Chinese goods and has threatened to tax all the country’s imports. The president also engaged in some saber rattling over Mexico tariffs before backing off, saying the two sides had reached an agreement over stemming illegal immigration.
“The tariffs are a very material event,” Jones said. “We haven’t had any experience in modern times with them. So you have to readjust the entire outlook.”
Jones sees an aggressive but short period of rate cuts. The Federal Open Market Committee, which sets monetary policy for the central bank, meets next week and could signal then its anticipated steps ahead.
Tudor Investment’s main hedge fund gained about 3.8% year to date through May, according to Bloomberg. The fund’s benchmark, the HFRI Macro Total asst-weighted index, is up 0.4% after falling 1.3% in May.
Gold breaks to 2019 highs, with dollar traders focused on consumer data
With traders already seeing a glass half empty, the news of geopolitical tensions rising in the Middle East has bolstered support for safe haven assets. A couple of oil tankers being attacked around the Strait of Hormuz (a crucial waterway for oil out of the Persian Gulf) is pulling oil prices higher, but also spiking tensions between the US and Iran once more. With bond yields falling again, the yen and Swiss franc are beneficiaries amongst forexmajors, whilst gold has broken out to new 2019 highs. However, attention turns back towards economic data today. With what is building up to be a crucial meeting of the FOMC next week, there are some key US consumer data points which could be key indicators of how the Fed reacts. Around 70% of the US economy is driven by the consumer and retail sales are a key indicator here. However, consideration of confidence is also necessary. The Michigan Sentiment gauge has held up well throughout 2019 despite the market wobbles. It is expected to slip back (driven by a dip in both current conditions and expectations) but if consensus is hit, the indicator will not be showing any real undue signs of stress on the consumer (yet). However, if we see the consumer indicators following the perception of a deterioration in the industrial environment, then there will be something for the rate cut advocates to crow about. Safe havens would benefit further, with a dollar underperformance.
A continuation of the negative sentiment through global markets and geopolitical risk will underpin renewed support for gold. Technically this is a very strong move, with RSI back higher into the 70s is a strong response from the bulls, whilst Stochastics are ticking higher again and the MACD lines are renewing their extension higher. This is a gold run that is being backed, but also comes with an element of caution too. The move to new 2019 highs opens the 2018 high at $1366 as the next resistance. However, this is now a huge band of crucial long term resistance and needs to be treated with caution. How much upside potential can there still be? For several years, every rally on gold has failed in the resistance band $1347/$1375. For now though, the outlook remains positive and the bulls are supportive. On the hourly chart, a strong configuration on momentum is helping the bulls higher. The breakout at $1348 is initially supportive, with an intraday band $1330/$1338. Going with the run for now, however, caution is needed if the rally begins to run out of steam.