Precious Metals News Roundup

Week of September 23- September 27, 2019

Stock market’s eerie parallels to September 2007 should raise recession fears

Published: Sept 21, 2019 3:29 p.m. ET

By SVEN HENRICH

Read this paragraph carefully in light of the Fed’s latest rate cut:

Since last year real GDP growth in the U.S. has been slowing. The chair of the Federal Reserve has been signaling that while growth is slowing, there is no recession risk and the Fed is forecasting continued positive growth. Warning signs in the economy, including an inverted yield curve, have been ignored and stock markets continued to make new highs in July. In August a correction took a place and subsequently a rally ensued into early September. On September 18 the Fed cut rates.

Sound familiar? It fairly describes market and economic conditions in the U.S. over the past couple of months. Except that this paragraph would be as true for the U.S. economy and stock market in September 2007 as it is today. Consider that 12 years ago the yield curve was inverted and U.S. economic growth was markedly slower than it had been in 2006. Yet the Standard & Poor’s 500 SPX, -0.11%   made a new high in July 2007 (same as 2019), there was an August correction (same as 2019), and then the Fed cut rates on September 18 (ditto — same day even).

U.S. stocks proceeded to make another marginal high that October — and that was it. Lights out. We all know what happened next.

It seems we are at a curious moment in time. Parallels to late 2007 are running through the markets now. This doesn’t mean the market’s fate will play out as it did then, but the ingredients are there and all that’s needed is a trigger. Perhaps the trigger was the attack on Saudi oil installations last weekend. It’s too early to tell, but clearly this is something to keep in mind.

Markets topped in October 2007 following the Fed’s September rate cut. That November, Ben Bernanke, then Fed chair, said there wouldn’t be a recession. According to a November 2007 Reuters report, Bernanke told a congressional committee: “Our assessment is for slower growth, but positive growth, going into next year.” The U.S. economy entered recession in December 2007. 

Does this not sound eerily similar to what Fed Chairman Jay Powell has been saying? Here’s Powell on September 6: “We’re not forecasting or expecting a recession,” he said. “The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up. Our main expectation is not at all that there will be a recession.”

Sure, there are differences between now and 2007, and of course no two time periods are alike, but the confluence of circumstances is impressive. Markets now are behaving in highly correlated ways with 2007, and the Federal Reserve seems to be behaving similarly as well.

What does all of this suggest?

For starters, the Fed will not tell you when a recession starts. They can and will be in total denial until after the fact. The 2007 recession began one month after Bernanke stated in front of Congress that there wouldn’t be a recession. So when Powell makes the same declaration as the Fed cuts rates again, know that such a statement has absolutely no meaning. “Not forecasting or expecting a recession” he stated on September 6. Is this Powell’s Bernanke moment?

To avoid the same fate, markets now need to make sustained new highs or risk seeing similar circumstances to 2007 play out in similar ways.

Gold gains on global growth woes; palladium sets record on supply concerns

PUBLISHED SUN, SEP 22 2019 - Reuters

Gold rose to a more than one-week high on Monday as weaker-than-expected economic data from Europe heightened fears of a slowdown in global growth, while palladium continued its record run driven by short supply of the auto-catalyst metal.

Spot gold was up 0.38% at $1,522.48 per ounce, after hitting its highest since Sept. 12. U.S. gold futures rose 0.98% to $1,530.0 an ounce.

“We have to acknowledge that these global growth worries are still there... the German data and data from Europe were weaker than expected. So... we’re seeing fundamental support for gold,” Julius Baer analyst Carsten Menke said.

Gold is likely to trade higher in the near term with more monetary easing by the world’s central banks and trade issues between the United States and China still on the table, he added.

German private sector activity shrank for the first time in 6-1/2 years in September, while euro zone business growth stalled this month, a survey showed.

The weaker-than-expected economic readings added to investor worries over the effect of the U.S.-China trade dispute on the world economy, denting appetite for riskier assets.

Over the weekend, the U.S. Trade Representative’s office issued a statement characterizing two days of talks with China as “productive.”

This comes after Chinese officials unexpectedly canceled a visit to U.S. farms following their negotiations in Washington.

Adding to global geopolitical risks, tensions remained elevated in the Middle East after Washington ordered more troops to the Gulf region to strengthen Saudi Arabia’s air and missile defenses, following an attack on the kingdom’s oil facilities.

Meanwhile, palladium surged to a all-time high of $1,664.50 an ounce.

“There seems to be a shortage of material... the forwards are tightening as well and there is good demand that cannot be met at the movement,” said Afshin Nabavi, senior vice president at precious metals trader MKS SA.

Palladium has risen more than 8% or about $125 so far this month.

“Healthy demand, constrained supply and challenging liquidity conditions are likely driving prices higher,” UBS strategist Joni Teves wrote in a note.

She added that a breakdown in U.S.-China trade talks, a deterioration in economic data and a pullback in equities from recent highs presented downside risks for palladium over the remainder of the year.

 

Silver gained 2.3% to $18.39 per ounce and platinum jumped nearly 1.2% to $957.31.

Gold Buoyed as Weak Eurozone Data Underlines Fears Over Global Growth -- MarketWatch

By William Watts MarketWatch Updated Sept. 23, 2019 9:33 am ET | WSJ Pro

Gold rose Monday, finding support after a round of downbeat data out of the eurozone underlined worries about global growth prospects and as traders continued to keep an eye on U.S.-China trade talks.

Gold for December delivery on Comex rose $11.10, or 0.7%, to $1,526.20 an ounce, while December silver jumped 57.1 cents, or 3.2%, to $18.42 an ounce.

The yellow metal gained ground after data indicated manufacturing activity in the eurozone contracted more sharply in September, posting its worst reading in nearly seven years. The flash eurozone manufacturing purchasing managers index fell to an 83-month low of 45.6 in September, down from 47 in August. Economists polled by FactSet had forecast a 47.3 reading -- a figure of less than 50 indicates activity declined.

Among individual country readings, Germany’s manufacturing PMI reading fell to its lowest in more than a decade.

“Gold moved higher on the weaker German PMI print as the dreary survey raises the likelihood of an even more dovish central bank policy shift as the slowdown in the global manufacturing sectors is thought to sit atop the Fed’s ‘wall of worry,’ said Stephen Innes, market analyst at AxiTrader, in a note.

Trade concerns also remain a factor. The cancellation of visits to farms in Montana and Nebraska by Chinese officials rattled stocks and stirred support for haven assets on Friday, as did remarks by President Donald Trump, who said he wanted a fully fledged deal with China rather than a limited agreement that addresses particular grievances. But officials said talks would continue in October, as planned, helping to soothe worries, analysts said.

In other metals trade, October platinum rose 1.7% to $959 an ounce, while December palladium edged up 0.1% to $1,627.30 an ounce.

December copper was off 0.7% at $2.5895 a pound.

 

 

Why Investors Should Be Bullish On Gold

By ETF Daily NewsCommodities7 hours ago (Sep 24, 2019 03:06AM ET)

  • The Fed cuts rates as expected

  • Rates continue to fall around the world

  • Lower rates and trade concerns are bullish for gold

 

We recently heard from the European Central Bank in what was President Mario Draghi’s final meeting as the head of the ECB. Ms. Christine Lagarde, the former managing director of the IMF, will slide into his seat as the head of the monetary authority in October.

At its September meeting, the ECB cut the short-term deposit rate by ten basis points. The central bank told the market that the central bank would restart quantitative easing to the tune of 20 billion euros in November. The sluggish European economic growth and concerns over Brexit have caused the continuation of dovish policy and have pushed rates to a new low at negative 50 basis points.

The move by the ECB came before the US Federal Reserve met on September 17-18 to decide on its course when it comes to monetary policy. The ECB put pressure on the Fed to cut rates, and US President Donald Trump has not been shy about his feelings on the matter. The President has become more than frustrated with the Fed. In a recent tweet, he referred to the members of the committee as “boneheads.”

 

The gold market was sitting and waiting to hear from the Fed as the guidance and interest rate cuts in June and late July fueled the recent rally. Gold had risen to its highest level since 2013. The most liquid gold ETF product is the SPDR Gold Shares (NYSE:GLD).

The Fed cuts rates as expected

On September 18, the US Federal Reserve cut the Fed Funds rate by 25 basis points. The central bank remains divided on the direction of rates as the vote was 7-3. Two members of the committee, Eric Rosengren and Esther George once again voted against a rate cut as they did on July 31. The economists believe that the strength in the US economy does not require lower short-term rates at this time. Meanwhile, James Bullard was the third dissenter, but he favored a 50-basis point rate cut because of the uncertainties facing the global economy.

Gold’s kneejerk reaction was to fall in the aftermath of the Fed meeting as the 25-basis point move disappointed some market participants.

As the daily chart of December futures illustrates, the price of the yellow metal fell to a low at $1490.70 in the aftermath of the rate cut. By the end of the week, gold was back above the $1520 level and price momentum, which had declined into oversold territory after the recent correction, turned higher. Open interest, the total number of open long and short positions in the gold futures market, remains near a record level at over 632,000 contracts at the end of last week.

Rates continue to fall around the world

We have now heard from both the ECB and US Federal Reserve, and the bottom line is that both central banks cut interest rates. Falling interest rates make gold a more attractive investment vehicle. While gold offers no yield, that does not matter these days given the low level of returns on cash. In the US, the short-term rate is now at 1.75%-2.00%. In Europe, with rates at negative 50 basis points, gold does not lose value over time, but euro deposits have become decaying assets.

Gold competes with fixed-income instruments. Historically low rates and the trend that indicates they are likely to continue to decline means that currencies are becoming less attractive each day. Moreover, the ECB will restart quantitative easing in November, which amounts to running the printing presses and printing more euros. Gold has a long history as a store of value, and in the current environment that is the most bullish factor for the yellow metal.

Lower rates and trade concerns are bullish for gold

Alongside falling interest rates, a breakthrough trade agreement between the US and China is not on the immediate horizon. We will likely see more than a few ups and downs on the trade front over the final quarter of 2019 and into 2020. The fear of a global recession will continue to push interest rates lower, and cause periods of risk-off where market participants run to safe-haven investment vehicles. Since June, gold has been one of the best-performing assets in the world. The yellow metal has been in a bull market since the early days of this century when it took off from under $300 per ounce.

The correction in gold has taken the price from $1566.20 to a low at $1490.70 on the December futures contract. Technical support remains far under the market at the $1377.50 level, where it broke to the upside in June. The current period of price consolidation is healthy for the gold market. I expect that we will see new highs and a move to the $1600 level or higher by the end of 2019.

Gold Gets Another Boost as U.S. Risks Strengthen Case for Havens

By Ranjeetha Pakiam September 24, 2019, 7:34 PM PDT Updated on September 25, 2019, 4:04 AM PDT

  • Pelosi says House is opening impeachment inquiry of Trump

  • Gold gains 19% so far this year on increased haven demand

Gold steadied after posting its longest rally in three months as investors weighed growing political tensions in the U.S., which reinforced demand for havens. Palladium notched a fresh record.

Bullion, which has already benefited from central bank easing, slowing growth and the trade war, gained an additional support after an announcement that the U.S. House of Representatives is opening a formal impeachment inquiry of President Donald Trump.

Gold is heading for a fifth monthly advance as the Federal Reserve and central banks globally cut interest rates to prop up economies hurt by the prolonged trade war. Weakening U.S. consumer confidence also dented sentiment. The possibility Trump will face impeachment is adding to the raft of concerns weighing on markets, even as the president said he would release a transcript on Wednesday of his phone call with the Ukrainian leader.

“The move in gold looks convincing enough to warrant some attention as it’s unlikely the political storm clouds over Washington are about to dissipate any time soon,” Stephen Innes, Asia-Pacific market strategist at AxiTrader, said in a note. This “might continue to weigh on equity market sentiment, possibly send U.S. yields lower and could undermine confidence in the U.S. dollar.”

Spot gold lost 0.2% to $1,528.78 an ounce by 11:57 a.m. in London. Prices capped four days of gains on Tuesday, the longest run since June 25, and the precious metal is 19% higher this year. Spot palladium rose to an all-time high of $1,677.45 an ounce, before paring gains.

Worldwide holdings in exchange-traded funds backed by gold inched up to register a fresh six-year high. Total known assets stood at 2,494.3 tons as of Tuesday, heading for the biggest quarterly rise since the three-month period to June 2016, according to data compiled by Bloomberg.

Gold is expected to be supported in the short term and may hit $1,600 an ounce, according to Howie Lee, an economist at Singapore-based Oversea-Chinese Banking Corp. “Global economic growth remains vulnerable, while markets continue to be sensitive to U.S.-China trade tension headlines,” Lee said in a note.

— With assistance by Elena Mazneva

Trillions of Dollars will soon be seeking Safety & Security in Precious Metals

Commoditytrademantra.com   September 24, 2019 

Just as we predicted, precious metals are setting up another extended momentum base/bottom that appears to be aligning with our prediction of an early October 2019 new upside price leg.

Recent news of the US Fed decreasing the Fed Funds Rate by 25bp as well as strength in the US stock market and US Dollar as eased fears and concerns across the global markets. These concerns and fears are still very real as the overnight credit market continues to illustrate. Yet, the precious metals have retraced from recent highs and begun to form a momentum base which will likely become the floor for the next move higher.

The one aspect that many traders don’t grasp just yet is that the US market could continue to push higher, just as they’ve done over the past few months, while precious metals continue to push higher, just as they’ve done over the past few months. The reality is the fear and greed driving the upside price move in metals is related to foreign market concerns (China/Asia, Europe/EU/BREXIT, Arab/Iran/Israel, and others). The true fear is that some type of war or economic event will start while the global markets are fragile. The recent news that the overnight Repo Market is seizing is another indication that the global credit market is very fragile. What will it take to launch metals higher? We believe the world is waiting for this next event to happen while this momentum base continues to set up.

GOLD DAILY CHART

This Gold Daily chart highlights the momentum base setup between $1480 and $1525. Any entry below $1500 is a relatively solid entry point for skilled technical traders. The next upside target based on our Fibonacci price modeling tool is $1795. Thus, the real upside move potential at this point is another 20% for Gold.

SILVER DAILY CHART

Silver is setting up a similar momentum base pattern after reaching levels just below $20 per ounce. We still believe the early October breakout date is relevant and we believe the next upside target will be between $21 to $24 in Silver. Any entry level below $17.60 is a solid area for skilled technical traders preparing for the next upside price leg.

There has been a lot of talk from analysts and researchers that Gold prices could rally well past $5,000 if the markets collapse. One analysis came out recently and suggest Gold could rally above $23,000. We are a bit more conservative with our initial upside target of $3,750.

The bottom line is you really don’t want to miss this opportunity in the precious metals markets once it forms a bottom and starts to rally. This recent price rotation is a gift for skilled technical traders. If you were to take a minute and really consider how precious metals would react to a foreign market credit collapse on top of the potential for a collapsing economic outlook resulting from the credit collapse, you’ll quickly understand that trillions of dollars will be seeking safety and security in the metals markets in due time. – Chris Vermeulen

Frank Holmes: Gold Doesn’t Need a Crisis to Reach US$8,000

Charlotte McLeod - September 26th, 2019

The gold price tends to rise in times of crisis, but according to Frank Holmes, CEO and chief investment officer at US Global Investors (NASDAQ:GROW), the yellow metal has the potential to go much higher even without a major calamity.

 

Speaking at the Denver Gold Forum, Holmes explained that worldwide money printing triggered by attempts to stimulate economic activity could lead to a substantial gold price increase.

 

“Gold can take off without (a) world-coming-to-an-end scenario — and so can your art if you’re an art collector. Your prints from Andy Warhol — they’re going to go up dramatically,” he said.

“Rolex watches, you’re seeing all of a sudden those watches are going up that they’re not making any longer — they’re going up at a very rapid rate in value because there’s so much money printing.”

While Holmes pointed out that gold would not reach US$10,000 per ounce without something catastrophic happening, a gradual rise to a significantly higher price is not unlikely.

“If gold was US$250 in 2001 and gold ran to US$1,900 — well, you’ve got an eight times increase. Gold then fell to US$1,000 and laid there for over five years. So if it went up another eight times that’s US$8,000. Well, that doesn’t mean the world’s coming to an end.”

Holmes emphasized that it’s a good idea for investors to allocate 6 to 10 percent of their portfolio to gold, and said that while the yellow metal has enjoyed a healthy run this year there’s still time to get in.

“We’re far from US$1,900. And what happens when the 30 year US government bond goes to negative rates? Do you know what’s going to happen? Gold’s (going) to US$3,000, US$4,000,” he said.

“So if Germany is negative rates, France is negative rates, Switzerland is negative rates … everyone is negative rates and Japan is negative rates. Just think about what’s going on.”

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