Precious Metals News Roundup

Week of October 7- October 11, 2019

4 Reasons More Gains Are On The Horizon For Gold And Silver

By Andy HechtCommodities 9 hours ago (Oct 07, 2019 01:24AM ET)

Starting and June and through the beginning of September, gold and silver prices were back in bullish mode. Gold rose to its highest price since 2013 and silver to its peak since 2016. The nearby gold futures contract traded up to a high at just under $1560 per ounce. Silver peaked at just under $19.54.

Markets rarely move in a straight line, and corrections can be healthy for bull markets. A price retracement cleans out stale long positions and creates an environment that brings in new buyers. Some market analysts and traders believe that the two precious metals will experience a deeper correction, and lower prices are on the horizon. I believe that any price weakness in the gold and silver markets will turn out to be a buying opportunity.

I remain bullish on the two metals that are the world’s oldest forms of currency. Gold and silver are a means of exchange that have been around a lot longer than any of the legal tender in circulation around the world today.

Gold and silver correct at the end of Q3

Gold and silver prices hit highs in early September, and both corrected over the past month.

The daily chart of December COMEX gold futures highlights the corrective move that took the price of the yellow metal from a high at $1566.20 on September 2 to a low at $1465 on October 1. The decline of 6.5% took the price to just below the midpoint of the breakout point at $1377.50 to the early September high. December futures settled at $1512.90 per ounce on Friday, October 4, a rise of 3.3% from the October 1 low.

The daily chart of December COMEX silver futures illustrates the decline from $19.75 per ounce on September 4 to a low at $16.94 on October 1. The over 14% decline was a reminder that the silver market tends to be far more volatile than the gold market. December silver futures settled at $17.625 on October 4, a little over 4% above the October 1 low.

I continue to believe that more gains are on the horizon for the gold and silver markets.

Reason 1: Rates are heading lower

The U.S. Fed has already cut the short-term Fed Funds rate by 50 basis points since July 31. At the same time, the central bank ended its balance sheet normalization program that had been pushing rates higher further out along the yield curve. Concerns over the global economy are likely to keep the downward pressure on U.S. rates. At the end of last week, market consensus continued to favor another two 25 basis point declines in the Fed Funds rate by the end of 2019.

The daily chart of the 30-year Treasury Bond futures contract in the U.S. shows that the long bond has moved from 157-17 on September 13 to a high at 165-03 on October 4. Rates are falling along the yield curve in the U.S.At its September meeting, the European Central Bank cut the deposit rate by ten basis points to a new low at negative 50 points. The ECB also announced that they will begin purchasing high-quality debt securities to the tune of 20 billion euros per month starting in November. A new QE program will push rates lower in an attempt to stimulate the sluggish European economy. Falling interest rates in the U.S., Europe, and around the world makes gold and silver more attractive as stores of wealth compared to fixed-income instruments. The trend in interest rates is bullish for the prices of precious metals.

Reason 2: Brexit is a mess

 

Gold and silver rose to their previous medium-term peaks in July 2016 in the aftermath of the Brexit referendum. Gold traded to $1377.50 and silver to $21.095 per ounce.

 

The deadline for Brexit is on October 31. The Parliament ruled that Prime Minister Boris Johnson must ask the EU for an extension if he cannot agree on a deal for the exit at the end of the month. The odds of an agreement are low.

The next event is likely to be a general election, which will stand as a second referendum for Brexit. At the same time, the Brexit Party in the UK emerged victorious at the recent elections for MPs to the European Parliament. The leader of the new political party, Nigel Farage, will have an influential role in the next general election and could emerge as a kingmaker. He has offered support to Prime Minister Johnson only if he replaces current Tory MPs who have not backed a hard Brexit. Additionally, the current leader must pledge to take the UK out of the EU without any deal. The Prime Minister has rejected the offer.

 

The uncertainty surrounding the future of the UK and EU could cause more than a little volatility in markets across all asset classes and is supportive of the prices of precious metals. Gold and silver are safe havens during times of uncertainty.

 

Reason 3: U.S. politics

The U.S. is a politically divided nation. The U.S. House of Representatives has started an impeachment inquiry to remove President Trump from office. At the same time, the 2020 election campaigns are now in full swing.

While President Trump is standing for re-election, the Democrats have three leading candidates to challenge the sitting President. Former Vice President Joe Biden’s lead in the polls has slipped, and Senator Elizabeth Warren moved into first place by a couple of percentage points. Senator Warren and Senator Bernie Sanders represent the progressive wing of the party. Both have pledged to expand social programs and address the wealth gulf within the country through policy moves.

Meanwhile, last week, Senator Sanders was hospitalized for heart-related problems. If he were to step aside, his supporters would likely flock to Senator Warren. At this point, a combination of the two Senators’ support would likely dispatch Joe Biden and set the stage for a progressive challenge to President Trump.

In a recent interview on CNBC, famed hedge fund manager Leon Cooperman said that a Warren victory could knock as much as 25% off of the value of the stock market. The uncertainty of the U.S. political landscape over the coming years will add to uncertainty in markets, which is supportive of precious metals prices.

Reason 4: Currencies are losing value

 

Central banks around the world continue to be net buyers of gold. China and Russia have vacuumed in all domestic output to build reserves, and that trend is likely to continue. At the same time, both countries and others have purchased the yellow metal. The official sector is adding to gold reserves.

 

Gold is a reserve asset for central banks around the globe. The IMF and governments consider gold a foreign exchange asset. During the most recent rally, the price of gold in most currencies around the world rose to record highs. In Q3, gold in euro terms put in an all-time high. The only currencies where the yellow metal did not rise to a record level in the third quarter were in the U.S. dollar and Swiss franc terms. However, the price rose in both of the currencies.

 

The bull market in gold began in the early 2000s, and the move since June was another leg to the upside in a long-term trend. The rise of gold is a symptom of the declining value of fiat currencies. The bottom line is that record-low interest rates and accommodative central bank policies have depressed the value of all foreign exchange instruments. Since rates are heading lower, the trend of currency devaluation is likely to continue.

Gold is a currency, and while central banks can print legal tender to their heart’s content, they cannot create more gold. Throughout history, gold has been like banknotes and silver the change in our pockets. Central banks continue to hold gold, and that is the reason why the yellow metal should continue to appreciate and take silver along for the bullish ride.

I view the recent correction in the gold and silver markets as another buying opportunity. Both markets can be volatile and could fall to even lower levels before turning higher again. However, any further selling would only make the value proposition for both metals more attractive.

LAWRIE WILLIAMS: Gold – doing its job as the ultimate global wealth protector

 

Perhaps gold followers and investors should be encouraged that after a turbulent week, with prices ranging from the low $1,460s to above $1,510 on conflicting U.S. data, the yellow metal closed the week at above $1,500.  Previous weeks had often seen the gold price brought down to just below the $1,500 level at the week end despite wide fluctuations in price midweek.  This plus $1,500 level was achieved despite the important Chinese market being closed for the latest ‘Golden Week’ holiday following the country’s 70th Anniversary National Day which was on October 1st.  Chinese markets will reopen this week.

In fact latest reports out of China suggest that Golden Week holiday shopping demand for gold jewellery has been particularly strong suggesting that portents may be good for a gold demand pick-up in the final quarter of the year.  With the Chinese New Year, followed by another Golden Week holiday period, occurring on January 29th next year we should see rising Chinese demand anyway as jewellers and fabricators stock up ahead of likely New Year buying for the year of the rat, despite the apparent U.S.-imposed sanctions and tariffs which do appear to be having and adverse effect on the country’s economic growth.   Nevertheless the Chinese economy still appears to be growing, albeit at a slower rate than before.

The Trump-initiated additional tariffs on Chinese imports into the U.S. has been designed to make Chinese products more pricey and, hopefully stimulate the U.S. manufacturing sector to gear up and replace them with U.S. domestic production.  But meanwhile a minor devaluation of the Chinese currency so far has helped mitigate the impact, and one suspects the Chinese manufacturers may be absorbing some of the costs anyway.  And any pick-up in U.S. manufacturing of replacements cannot happen overnight – if ever.  Certainly the latest PMI data suggests that U.S. manufacturing is seeing something of a downturn as the strong U.S. dollar is making exports even less competitive.  That is why President Trump is berating the U.S. Federal Reserve for not cutting interest rates fast enough, or sufficiently enough, to see a downturn in the U.S. dollar index.  These are unintended consequences of the Trump tariff policy moves!

Geopolitical tensions remain in the air and these could affect the gold price positively in the next few weeks.  The most likely negative development for gold would be some kind of breakthrough in the U.S.-China trade talks, but we don’t see any significant conciliatory move by either side ahead.  Meanwhile the possible Trump impeachment process seems to be gathering steam, while foreign policy issues could well raise ever more uncertainty.  North Korea’s President Kim is making unhelpful statements re. possible nuclear disarmament, while that country’s recent apparent submarine missile test launch seems to have raised the stakes.  Iran is proving to be something of an intransigent bête noir, while Russo-Chinese-European moves to circumvent the dollar in global trade by bypassing the U.S. dominated SWIFT global financial system could put a dent in the benefits the U.S. incurs from being the world’s dominant reserve currency.  While any such effects could take several years yet to materialise they do promise an end to the power of the petrodollar in global oil trade, and could mean a reduction in the impact of U.S. sanctions on Iran.

For the moment the U.S. equities markets remain relatively stable, but with a degree of nervousness apparent.  The Fed’s likely further cuts in interest rates at end-October’s meeting, and possibly at the December meeting too, may find favour by President Trump in devaluing the dollar and benefit equities, but the continuing overpricing of tech stocks in particular could blow up at any time, and if they start to fall could bring down the rest of the market with them.

However, although in our view the logical likely progress of the gold price from now is upwards, some technical analysts reckon the charts portend a short term downturn – perhaps even to $1,400 or below.  We don’t see that as happening, but if it does it should present an excellent buying opportunity as the long term trend is for the price to advance.  But with the gold price things seldom run smoothly and we could well experience ups and downs in its progress to higher levels.  We do foresee gold hitting, and perhaps exceeding, its all time high in U.S. dollars within the next couple of years.  It has already done so in many other currencies so is doing its job well as a global wealth protector – just ask any Venezuelan gold holder!

China’s Gold-Buying Spree Tops 100 Tons During Trade War

By Ranjeetha Pakiam  October 6, 2019, 5:27 PM PDT Updated on October 6, 2019, 11:23 PM PDT

  • Central bank adds bullion for 10th straight month in September

  • Beijing ‘needs a hedge’ against its dollar holdings, OCBC says

China has added more than 100 tons of gold to its reserves since it resumed buying in December, reinforcing its standing as one of the major official accumulators as central banks stock up on the precious metal.

The People’s Bank of China picked up more gold last month, raising holdings to 62.64 million ounces in September from 62.45 million in August, according to data on its website. In tonnage terms, the latest inflow totals 5.9 tons, and follows the addition of about 99.8 tons over the prior nine months.

Bullion hit the highest in more than six years in September as slower growth, the trade war and rate cuts spurred investor demand. Central banks have been major buyers too, especially in emerging markets. Official purchases will likely continue as protectionist policies and geopolitical concerns add to demand, according Suki Cooper, precious metals analyst at Standard Chartered Bank.

“Given strained relations with the U.S., China needs a hedge against its large holdings of the dollar, and gold serves that function,” said Howie Lee, an economist at Singapore-based Oversea-Chinese Banking Corp. “As China becomes a superpower in its own right, I expect more gold-buying.”

The PBOC’s run of bullion-buying has come against the challenging backdrop of the trade war with the U.S. and a marked slowdown in growth at home. While high-level negotiations are set to resume in Washington this week, Chinese officials are signaling they’re increasingly reluctant to agree to a broad deal.

Spot gold rose as much as 0.4% to $1,511.31 an ounce on Monday and traded at $1,505.84 in early London trade. While prices fell 3.2% in September, they are still up 17% this year. The PBOC data were released at the weekend.

Along with China, Russia has also been adding substantial quantities of bullion. In the first six months, central banks worldwide picked up 374.1 tons, helping push total gold demand to a three-year high, the World Gold Council has said.

While a 10th straight month of accumulation marks a steady buying pattern for the PBOC, China has in the past gone for long periods without disclosing moves in gold holdings. When the central bank announced a 57% jump in reserves to 53.3 million ounces in mid-2015, that was the first update in six years.

Recent Pullback in Gold Could Provide Buying Opportunity

Precious metal ticks higher ahead of trade talks, Fed’s minutes

By Amrith Ramkumar Oct. 8, 2019 10:16 am ET

Some analysts are viewing a recent pullback in gold prices as a buying opportunity ahead of trade talks and minutes from the Federal Reserve’s September meeting, the latest example of bullion’s resilience as this year’s rally in safe-haven assets continues.

Gold for December delivery inched up 0.5% to $1,511.60 a troy ounce on the Comex division of the New York Mercantile Exchange Tuesday, paring some of Monday’s losses but staying more than 3% below last month’s six-year high.

Hopes for coming U.S.-China trade discussions and some better-than-feared economic data points have fueled the recent pullback in gold and other assets favored by investors when markets turn rocky. Those trends have also pushed up stocks as some analysts anticipate a cease-fire on tariffs could relieve pressure on the world economy and boost corporate profits.

But some analysts remain skeptical that the world’s two largest economies will reach an agreement. Stocks fell Tuesday after the U.S. expanded its list of blacklisted Chinese firms. The latest trade discussions are scheduled to take place in Washington later this week.

Another factor that could send gold back to this year’s peaks: Bets on lower interest rates. The Fed has signaled it could continue cutting rates if economic data deteriorate further, so some analysts expect further rate cuts by the Fed and other central banks around the globe to boost bullion.

Investors were also looking ahead to minutes from the latest Fed meeting, scheduled to be released Wednesday.

Lower rates make gold more attractive to yield-seeking investors by making it less likely that they will miss out on outsize returns by owning bonds instead of gold. Unlike bonds and other assets, gold offers no yield simply for holding it.

“We continue  to see upside  from current levels  given the potential for further deterioration in data, Fed easing, and lingering trade uncertainty,” Joni Teves, a strategist at UBS, said in a recent note to clients.

Hedge funds and other speculators have pulled back net bets on higher gold prices in recent weeks, potentially giving investors room to move back into the market if trade talks sour. Net bullish gold bets hit their lowest level since late July during the week ended Oct. 1, Commodity Futures Trading Commission data show. Figures for the week ended Tuesday will be released on Friday.

The Fed minutes could also impact the strength of the dollar, which has hurt gold prices in recent weeks by making the metal more expensive for overseas buyers. On Tuesday, the WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, inched down less than 0.1%.

Elsewhere in commodities Tuesday, U.S. crude-oil futures slid 1.1% to $52.16 a barrel, extending a recent slide with analysts anticipating that crumbling global demand and steady production will lead to a supply glut. Prices are at a two-month low. Brent, the global gauge of prices, fell 0.9% to $57.79 a barrel.

Herd of bulls could push gold past US$1,600 per ounce

A clutch of geopolitical and economic factors could do that, but predictions are still tricky

THU, OCT 10, 2019 - 5:50 AM ANITA GABRIEL

GOLD's ascent has been petering out lately, but a low-yield environment amid waning global macros, shaky geopolitics and rate-cut expectations in the US could give renewed oomph to the bullion rally and push the yellow metal past US$1,600 an ounce.

London-based mining analyst at Global Equity Research Venkat Ramana Nandyal said it is likely that gold prices will hit that mark next year: "Most central banks have been cutting rates in the last six months to pre-empt a slowdown. As a result, gold prices have gone up by some 20 per cent. An increase of between 5 and 7 per cent from hereon wouldn't be a difficult bridge to cross."

Gold, a traditional safe-haven asset, has benefited from a confluence of risk factors - the US Federal Reserve's dovish stance, the US-China on-off trade spat, unremarkable economic data and Brexit jitters; its price jumped from a summer low of US$1,385 an ounce to US$1,557 early last month. This year alone, gold is up just over 17 per cent.

It had softened as a result of some calm in the US-China trade war front, but the dispute has since flared up again, with the US' issuing of travel-visa bans on Chinese officials and its putting eight Chinese firms on a blacklist ahead of key high-level talks.

In this fluid situation, analysts say the gold bulls are not about to run out of steam. The gold-buying binge by the People's Bank of China as a hedge against large holdings of the dollar amid strained ties with the US could also be an effective backstop.

Analysts at TD Securities wrote in a recent note: "The fundamentals point to firming gold. Some US$15 trillion worth of investment-grade paper is yielding negatively, and there is downside pressure on US rates as investors aggressively seek yields.

"In contrast, gold is in contango and offers positive yield."

The house added that a US$1,600 level for gold could be on the cards once focus shifts "from headlines to fundamentals", given that little has changed in the macroeconomic narrative.

OANDA's senior market analyst for the Asia-Pacific, Jeffrey Halley, said this is "not a gold story but a haven-flow story". In other words, gold's next move up or down will not be defined by the metal's fundamentals but its appeal as a risk hedge.

Another fillip for gold lies in the signs of rising inflation in the US, said Fidelity International's lead cross-asset strategist Wen-Wen Lindroth.

"Any expectation of eventual fiscal stimulus suggests that inflation breakevens are very cheap at current prices. As a result, we are positive on gold as an inflation play".

CMC Markets' Margaret Yang suggested that a major catalyst needs to be in the offing, for gold - now trading at a critical level of US$1,500 an ounce now - to hit that high mark. Triggering factors include aggressive rate cuts down the road or the US Fed pushing through with quantitative easing (QE4) amid a spreading trade war and moribund economic data.

One rate cut this year may not be enough to push gold to that level, but if there are two cuts (which at this point is unlikely), gold prices could surge, said one analyst.

Axi Trader's Asia-Pacific market strategist Stephen Innes said: "I'm pencilling in one more rate cut this year but three more next year. Ultimately, I see the 10-year US bonds trading at 1.25 per cent then. Gold will struggle to make explosive gains if the US 10-year bonds remain above 1.5 per cent, so the metal needs a lot of help from a weaker US economy."

OANDA's Mr Halley said that US$1,600 would be a challenge unless there is a severe geopolitical event or the world tips into a sudden, deep recession requiring emergency easing by central banks globally.

For now, it is a tricky business predicting when the shiny metal could reach that mark. Mr Innes said: "It is virtually impossible to predict with any degree of certainty the short-term direction for gold in these unsettled times."

In August, when it hit US$1,500 an ounce for the first time in six years amid a global chorus of central bank easing and protests in Hong Kong, Edward Meir, a consultant at broker-dealer INTL FCStone ventured that there was a small possibility that the price of the metal could hit US$1,600 an ounce soon.

That hasn't happened - yet.

Mr Innes expects gold to climb to US$1,600 next year and push still higher until the US Fed starts to raise interest rates. "So, there could be considerable headroom in gold's medium- to long-term price outlook," he said, adding that it will peak next year at around US$1,650 an ounce.

Indeed, September was a historic month for gold. The latest report of the World Gold Council (WGC) said that holdings in global gold-backed exchange-traded funds (ETFs) hit an all-time high during the month, with inflows of nearly US$4 billion.

Part of that may have been led by the volatility in the metal's prices.

OCBC Bank's economist Howie Lee said gold had an over-5-per-cent peak-to-trough decline in September, hitting a low of US$1,472.49 an ounce on the last day of the quarter.

He attributed the decline to profit-taking before the close of the third quarter, which he said was "understandable", given that prices had shot up as much as 10 per cent over the quarter alone.

If or when it gets there, can gold be sustained at US$1,600?

Global Equity Research's Mr Venkat replied: "We have seen that after the last two recessions in early 2000 and 2008/2009, the floor price of gold increased. Currently, gold producers are using US$1,300 an ounce as a cut-off for their reserves and resources. If the floor price rises to US$1,500 an ounce, more low-grade mines will go into production.

"Gold retail demand, though, will take a hit, but when the new floor price is set, it will stabilise."

Central Bank Gold Buying Ramps Up Again

Oct. 11, 2019 2:28 AM ET  

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Gold buying ramped up again in August after ebbing slightly in July, according to the latest data released by the World Gold Council.

Russia has been the number one gold-buying central bank this year.

According to the World Gold Council, a dozen central banks have increased their gold reserves by at least 1 ton through the first eight months of 2019.

 

The central bank gold-buying spree shows no signs of letting up. In fact, it ramped up again in August after ebbing slightly in July, according to the latest data released by the World Gold Council.

After a relatively modest net increase of 13.9 tons in July, central banks globally took in a net 57.3 tons of gold in August.

Gold purchases of a ton or greater amounted to 62.1 tons. Gross sales came in at 4.8 tons.

The World Gold Council bases its data on information submitted to the International Monetary Fund.

Four central banks accounted for the bulk of the buying in August.

Turkey added the most gold to its reserves, accumulating 41.8 tons of the yellow metal.

Russia added another 11.3 tons to its hoard. Russia has been the number one gold-buying central bank this year, and it has paid off in a big way. The Russian Central Bank's gold reserves topped $100 billion in September, thanks to continued buying and surging prices. With its latest purchases, Russia has increased its gold holdings by nearly 120 tons this year alone.

China bought another 5.9 tons. It was the ninth straight month of gold purchases for the People's Bank of China.

Qatar increased its gold reserves by 3.1 tons.

Two other central banks added smaller amounts of gold to their reserves:

  • ECB - 0.1 tons

  • Kyrgyz Republic - 0.4 tons

Two central banks sold gold amounts greater than one ton. Kazakhstan shrunk reserves by 2.6 tons. This was a reverse in course. The Kazakh central bank has been aggressively buying gold.

Uzbekistan sold another 2.2 tons of gold in August after dumping 22.4 tons in July. Uzbek central bank Governor Mamarizo Nurmuratov announced earlier this year that he planned to purchase US and Chinese sovereign debt in order to diversify the nation's $26 billion of international reserves away from gold as the country moves out of relative economic isolation.

According to the World Gold Council, a dozen central banks have increased their gold reserves by at least 1 ton through the first eight months of 2019.

Central bank gold purchases in July continue a trend we saw through 2018. In total, the world's central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971 and the second-highest annual total on record.

A move to minimize exposure to the US dollar, especially by countries like Russia and China, is driving this central bank gold-buying spree.

Peter Schiff has talked about central bank gold buying. He has noted that the US went off the gold standard in 1971, but he thinks the world is going to go back on it.

"The days where the dollar is the reserve currency are numbered and we're going back to basics. You know, everything old is new again. Gold was money in the past and it will be money again in the future, and central banks that are smart enough to read that writing on the wall are increasing their gold reserves now."

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