Gold Is Getting a Boost From the Trade War, and So Are Gold Stocks
By Crystal Kim May 13, 2019 12:38 p.m. ET Barron's
Gold and gold-related investments are behaving like the haven they’re supposed to be. Bullion-backed ETFs such as the SPDR Gold ETF (ticker: GLD) and mining ETFs such as the VanEck Vectors Gold Miners (GDX) are glittering Monday as trade war uncertainty weaken global equity markets.
The Back Story. The escalation of the trade war caused the Dow Jones Industrial Average the end last week down, yet gold and gold stock exchange-traded funds saw a modest gain over the same period, suggesting investors had started nibbling, or were just waiting to see what would happen. The on-again-off-again U.S.-China trade war “muddled gold’s direction pending a firm outcome,” wrote Christopher Louney, a commodity strategist at RBC Capital Markets in a report published Thursday.
What’s New. On Monday, as the outcome appeared skewed to the negative, investor uncertainty came back with a vengeance. And that’s been good news for gold. Gold and gold mining investments are making the ETF leaderboards Monday. The Van Eck Vectors Gold Miners ETF has gained more than 1.8% while the SPDR Gold Trust has risen 1%.
Looking Ahead. Investors stand to add to their gold positions, which remain at “neutral,” according to a Deutsche Bank report published Monday, low relative to historical market cycles.
There are some 20 different gold ETFs to choose from. When it comes to choosing one lump of gold for another nearly identical lump of gold, expense ratios is often the tiebreaker. However, there’s another golden ratio investors should consider: the gold-per-share ratio or how much gold is represented in one ETF share. For example, one share of the newly launched SPDR Gold MiniShares Trust (GLDM) represents one-hundredth of an ounce of gold, while its big brother SPDR Gold Shares represents one-tenth of an ounce of gold. The smaller the ratio, the lower the price of one share of the ETF. That appeals to investors who have less cash to put to work, who can buy 100 shares of the SPDR Gold MiniShares Trust for $1298, instead of an odd lot in a higher-priced ETF.
That is one reason the cheapest physical gold ETFs on the market, the Aberdeen Standard Physical Swiss Gold Shares (SGOL), and theGraniteShares Gold Trust (BAR) aren’t as popular as the more expensiveiShares Gold Trust (IAU) and the SPDR Gold MiniShares as of late.
For gold investors, fee wars, in addition to trade wars, bodes well for them. The Aberdeen gold ETF used to charge 0.39%, now it charges 0.17%. The SPDR MiniShares launched last summer with a 0.18% fee, a fraction of its older brother SPDR Gold Trust’s 0.4% fee.
Bully for gold bulls.
U.S. Stock Slide Deepens as Trade Jitters Hit Tech: Markets Wrap
Chip firms lead equity laggards; energy, bank shares climb
Dollar slips, euro gains; Indian stocks surge on exit polls
U.S. equities sank as the fallout from the White House’s moves against Chinese telecom giant Huawei battered technology shares and stoked trade jitters. The dollar slipped.
The S&P 500 Index slid in New York Monday, led in part by semiconductor companies. Advances in financial shares and utilities helped offset some of the losses. The tech-heavy Nasdaq 100 Index also took a beating. Ten-year Treasury yields rose before a slew of U.S. data this week as well as Federal Reserve policy-meeting minutes on Wednesday.
Markets remain on edge as the trade war develops, with the impact of President Donald Trump’s threats to choke Huawei Technologies Co. reverberating across the global supply chain on Monday and hitting some of the biggest component-makers. Trump said in an interview he was “very happy” with the trade war and that China wouldn’t become the world’s top superpower under his watch.
“Let’s be really clear on these trade talks: These are going to go on for months, quarters, years, maybe even decades. You don’t take 20 years of fairly free trade and try to reverse it or change it overnight,” Gibson Smith, chief investment officer at Smith Capital Investors, said in a phone interview. “It’s going to take a long period of negotiating. There will be some wins and some losses on both sides. In the end, the market’s going to have to adapt to the new pricing mechanism that’s associated with these trade negotiations.”
Software and semiconductor shares helped pull the Stoxx Europe 600 index lower. Equities fell in Hong Kong and China, though the offshore yuan held steady, signaling some relief after trade turmoil had dragged the currency to a five-month low. The euro edged higher following five days of declines as elections for the European Parliament approached.
Crude fluctuated after Saudi Arabia and other key producers in OPEC signaled their intention to keep oil supplies constrained for the rest of the year, while pledging to prevent any genuine shortages.
Shares in India surged as exit polls showed Prime Minister Narendra Modi was poised to retain power. And they rallied in Australia along with the nation’s currency after a surprise election victory for conservative Prime Minister Scott Morrison.
Johnson Matthey projects 2019 supply deficits for platinum, palladium
Demand for both precious metals on the increase
Johnson Matthey forecasts in its latest metals report that the platinum market will experience shortages in 2019, joining palladium.
The recently released report suggests 2019 investment demand for platinum at 858,000 ounces, compared with 67,000 ounce in 2018, projecting a platinum deficit of 127,000 ounces, following record surplus in 2018 of 375,000 ounces, up from 344,000 ounces in 2017.
Platinum supply was totaled at 4,450,000 ounces in 2017, 4,467,000 in 2018 and projected at 4,565,000 in 2019, with more than 70 percent of that supply coming from South African mining. Total net demand for platinum was 6,079,000 in 2017, 5,741,000 in 2018 and is forecast at 6,316,000 for 2019.
Total palladium supply was reported at 6,408,000 ounces in 2017 and 6,977,000 ounces in 2018 and is forecast at 6,996,000 ounces for 2019. Total net demand for palladium was listed at 7,283,000 ounces for 2017, decreasing to 7,098,000 ounces for 2018 and forecast at 7,805,000 ounces for 2019.
"During the first quarter of 2019, investors took advantage of low platinum prices to purchase nearly 700,000 oz of platinum ETFs [exchange-traded-funds.] The steep climb in the palladium price since August 2018 has led some investors to conclude that platinum appears under-priced, in view of its potential to substitute for palladium in automotive applications."
Additionally, "In Japan, investors have historically taken advantage of periods of negative market sentiment to buy into falling platinum prices; this means that Japanese investment demand often runs counter to trends elsewhere in the world," according to the Johnson Matthey report. "Between 2015 and 2018, as the retail platinum price moved down through ¥4,000 [equivalent to $36.58 in U.S. dollars] and then ¥3,500 per gram, and to a historically wide discount to gold, Japanese investors acquired over 1.5 million ounces of platinum in the form of bars purchased over the counter from bullion houses."
Concerning investment in palladium exchange-traded funds, "At their height in 2014, ETFs held nearly 3 million ounces of palladium. In the four years since then, the redemption of these holdings has added more than 2.2 million ounces of liquidity to the market; by the end of last year, just 710,000 oz remained. However, in early 2019 – as the palladium price set a series of new records on its way to a peak of over $1,600 in March – ETF selling all but dried up. Net ETF investment in the first quarter was close to zero."
JPMorgan Says Yen and Gold May Improve as Trade-War Hedges
By Joanna Ossinger May 19, 2019, 9:29 PM PDT Bloomberg
Trade tensions could last for years, JPMorgan strategists said
Investors need to explore the value of tactical hedges
Traditional hedges gold and the yen have performed poorly since the beginning of the U.S.-China trade war, but that could now change given the more dovish monetary backdrop, according to JPMorgan Chase & Co.
A combination of a Federal Reserve that has stopped tightening policy and investor positioning that suggests the two assets are under-owned, could see their performance as hedges improve in 2019 and 2020, wrote strategists including John Normand in a note Friday. It’s premature to call for an end to trade tensions, which could last for years, so investors should explore the value of tactical hedges and strategic underweight positions, they argued.
“Although some markets like developed market equities have begun recovering from May’s trade war escalation, it’s premature to extrapolate stability,” they wrote. Summer activity could show a renewed slump in manufacturing, risk premia are not very apparent and positioning adjustments have been modest, they said.
The impact of the trade war on markets has been difficult for Wall Street strategists to predict. Normand’s own JPMorgan says the S&P 500 Index end up anywhere from 2,550 to 3,200 (it closed just below 2,860 Friday). Morgan Stanley thinks the dispute could increase the potential of a recession. And numerous predictions in recent months that the dollar might decline have been stymied.
While tactical hedges can improve the returns of defensive positions, they require skill to time entry and exit points, JPMorgan argued. Though strategic underweights avoid the need for this “nimbleness”, they could end up hurt returns as and when trade tensions ebb, it said.
Charts suggest there could be a bull market in gold after eight lean years
By Sven Henrich Published: May 22, 2019 9:55 a.m. ET MarketWatch
Trend-line resistance has been overcome, and trend-line support has been affirmed
Is gold about to go full bull? Let’s check some charts to see.
Before we do, here are some basic price facts: Gold GC00, +0.18% peaked in 2011 at just above $1,900 an ounce. Since then, it’s been an exercise in dread for gold bugs. (Disclosure: I have no positions in gold.)
Gold bottomed in early 2016 and now it’s back in the same price range as it’s been since 2013. So, basically, the price of gold has gone nowhere over the past six years, which could be interpreted as a consolidation range.
While the price chop may seem arbitrary, we can, however, discern some structural conclusions on a larger time-frame chart.
• A supporting trend line from the 2008 lows connecting the 2015/2016 lows and the 2018 lows. Price remains above this trend line.
• A trend line that formed resistance off the 2011 and 2012 highs and represented resistance in 2016 and initially in 2017. Price has broken above that trend line in 2017 and has remained there ever since.
Bottom line: Trend-line resistance has been overcome and trend-line support has been affirmed. Combined, those events are supportive of a potentially larger bullish outlook.
However, price has really not made much progress. In the chart above, one may identify a potential bull flag, but that has risk that can be traced to the support trend line.
Taking a closer look, we can see an additional pattern, and I present a structure identified by my better half, Mella, a potential inverse pattern on gold.
To be clear, this is not a confirmed pattern; it’s a potential pattern. But it comes with the aforementioned bull flag. To see confirmation, gold needs to move solidly above $1,350-$1,380 an ounce, perhaps a tall order in its current configuration. That pattern, if triggered, may be quite powerful, as it implies a $1,520 target.
When is the pattern and support structure invalid? A sustained drop below $1,250 would spell trouble. A level of $1,250 represents confluence support of the long-term support trend line and the 0.236 Fibonacci level shown in the earlier chart.
Another way to think about the setup is risk and reward. If the pattern plays out, risk can be defined as $1,230/$1,250 and upside reward to $1,520, or about 3% downside and 19% upside from current levels.
Gold And Silver Prices May See "Fireworks" Soon Should Supply Lag Demand
Kitco News Wednesday May 22, 2019
Investors may be in for “fireworks” this summer if precious metals producers are unable to keep up with what would be very high retail demand should prices drop lower, this according to Peter Hug, global trading director of Kitco Metals.
“I think south of $14 [an ounce for silver], there’s going to be extreme interest in the market from the retail public. And if that happens coming into June, July, when the refineries and the Mints, i.e. the U.S. Mint and the Royal Canadian Mint, tend not to have peak production, that tends to spike premiums, so there could be some fireworks coming this summer,” Hug told Kitco News.
He noted that key support levels will be $14 an ounce for silver and the low $1,200s for gold, as a fall below those levels could trigger strong retail demand.
Hug said that the difficulty in trading gold right now comes from a number of influences pushing on the yellow metal in different directions.
“It’s a really difficult market to trade right now, there’s a lot of different influences on the market. It’s very, very volatile and very thin, and there’s very little participation in the market, so it’s difficult to get a beat on momentum and direction right now” he said.
Aside from seasonality, geographical factors may also come into play, as a lack of interest from American investors is evident due to the stronger U.S. dollar relative to other major currencies.
“But that’s not true in the European context,” Hug noted. “Nor is it true in some of the other markets, where because of the currency depreciation against the dollar, metals have actually been rising, so we are seeing physical offtake in the European markets and to some extent in the Hong Kong market and also in Canada, with the Canadian dollar relatively weak against the U.S. dollar.”
Gold settles at highest in a week as trade standoff contributes to drop in global stock markets
Published: May 23, 2019 3:06 p.m. ET MarketWatch
Gold is set ‘for a real, no kidding rebound towards $1,300’: analyst
Gold futures logged their highest finish in a week Thursday, buoyed by declines in global stock markets brought on by expectations for a prolonged U.S.-China trade standoff.
The metal also found support following Federal Reserve meeting minutes out a day earlier that revealed a panel seemingly comfortable with its patient stance on interest rates.
June gold GCM19, +0.69% on Comex added $11.20, or 0.9%, to settle at $1,285.40 an ounce, on for the highest most-active contract settlement since May 16, according to FactSet data. Prices ended higher Wednesday and boosted that gain in the after-hours, when the Fed minutes were released. The moves follow Tuesday’s finish at the lowest most-active contract settlement since May 2.
“I think gold is set up nicely right now for a real, no kidding rebound towards $1,300,” Jeff Wright, executive vice president of GoldMining Inc., told MarketWatch.
Gold’s gain Thursday came as benchmark U.S. stock indexes moved sharply lower. European and Asian stocks also dropped. The dollar index DXY, -0.19% was down 0.2% at 97.889, contributing to a lift in prices for dollar-denominated gold.
“Equity risk on momentum has retreated to full on risk off; could be ready for the sell in May and go away equity market through end of the month,” said Wright, which is a positive for gold.
Meanwhile, the minutes from Federal Open Market Committee’s April 30-May 1 meeting released on Wednesday revealed that the FOMC members agreed that their inaction could last for “some time.”
“Interest rates are steady, if not possibly going lower by year-end,” said Wright.
The FOMC may also “be forced to add to [the] balance sheet as [the] U.S./China Tariff dispute has entered into standoff phase and China’s appetite for U.S. Treasury issuance has begun to wain,” he said. “This is a net positive for a gold rebound.”
Among U.S. economic data Thursday, weekly jobless claims fell to 211,000, but American businesses grew in May at the slowest pace since before President Donald Trump was elected, with an IHS Markit “flash” survey of manufacturersat 50.6 this month, down from 52.6 in April. New-home sales in April were at a seasonally adjusted annual rate of 673,000 in April, down 6.9% from March’s tally, which was revised sharply higher.
As for other Comex metals, silver saw its July contract SIN19, +0.87% add 1.1% to $14.613 an ounce and July copper HGN19, +0.19% tacked on just under 0.1% to $2.681 a pound. July platinum PLN19, -0.72% shed 0.7% to $799.50 an ounce, with prices ending below $800, the lowest for a most-active contract since February. June palladium PAM19, -0.63% finished at $1,307.80 an ounce, down 0.4%.
The SPDR Gold Shares exchange-traded fund was up 0.9%.