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Gold and Silver Prices
Gold prices hit a peak and closed at its highest on Friday since July and also had its biggest weekly gain since August following market losses and a weaker U.S. dollar after weaker-than-expected U.S. jobs data.
"'The non-farm payroll data came out lower than expected. It is a negative pick that is causing people to hedge a little bit more in gold and any shorts are probably covering and adding few longs to the market,' said Miguel Perez-Santalla, vice president of Heraeus Metal Management in New York.
"The dollar eased against a basket of currencies on Friday after data showed U.S. job growth slowed in November and monthly wages increased less than expected, suggesting some moderation in economic activity.
"Interest rate futures suggested traders see fewer than one rate increase from the Fed next year, compared with previous expectations for possibly two rate hikes.
"Gold, which is considered a safe investment during times of financial, economic and geopolitical uncertainty, has recovered about 7 percent from 19-month lows hit in mid-August.
"'With increased volatility and geopolitical risk, macro asset allocation is becoming more gold-positive again while we believe much of the dollar's upward move is now behind us with rate hike expectations dropping,' analysts at BMO Capital Markets said in a note." ("Gold hits 5-month peak as dollar slips after US jobs data," Reuters, CNBC, 12/07/18.)
Gold ended the week up $25.40, closing at $1,247.50. Silver ended the week up $0.44, closing at $14.59.
DoubleLine's Gundlach says Treasuries point to economy ready to weaken - Ablan
Gundlach, known as the Bond King, said the Treasury yield curve from two- to five-year maturities suggests disbelief in the Fed's prior plans to raise rates through 2019.
"Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said the U.S. Treasury yield curve inversion on short-end maturities was signaling the 'economy is poised to weaken.'
"Gundlach told Reuters the Treasury yield curve from two- to five-year maturities is suggesting 'total bond market disbelief in the Federal Reserve's prior plans to raise rates through 2019.'
"U.S. two-year Treasury yields rose above three-year Treasury yields on Tuesday for the first time in more than a decade as traders piled on bets the Fed might be close to ending its rate-hike campaign. The Dow Jones Industrial Average closed down nearly 800 points, or 3.10 percent, and the Standard & Poor's 500 fell over 90 points, or 3.24 percent.
"'If the bond market trusts the Fed's latest words about "data dependency" then the totally flat Treasury note curve is predicting softer future growth (and) will stay the Fed's hand,' said Gundlach, who oversees more than $123 billion in assets.
"'If that is indeed to be the case, the recent strong equity recovery is at risk from fundamental economic deterioration, a message that is sounding from the junk bond market, whose rebound has been far less impressive,' he said.
"Yield curve inversions are seen generally as precursors of a recession. An inversion of the two-year and 10-year yields has preceded each U.S. recession in the past 50 years.
"Gundlach said Fed policymakers will need to be especially careful in their choice of words when they meet on Dec. 18-19 to deliver on their promised rate hike.
"'There can't be another screw-up like last time, when they dropped "accommodative" but simultaneously characterized the Fed funds rate as "a long way" from neutral,' Gundlach said. 'Seems likely they will hike. They kind of promised and the markets would get scared if they flipped. Like the airline passenger who hates turbulence and gets calmed down if the stewardess looks unafraid. If the stewardess starts freaking out though, watch out.'
"Fed Chairman Jerome Powell reversed his tone last week, when he said the U.S. central bank's policy rate is now "just below" neutral, a level at which rates neither boost nor put the brakes on the economy.
"Overall, Gundlach said there are bear markets in equities of homebuilders, autos and some banks. 'Keep it simple ... Quantitative Tightening is bad for stocks.'" ("DoubleLine's Gundlach says Treasuries point to economy ready to weaken," Jennifer Ablan, Reuters, 12/04/18.)
Dow plunges nearly 800 points on rising fears of an economic slowdown - Imbert
The yield on the three-year Treasury note surpassing its five-year counterpart and remaining worries about a possible trade war pushes the markets lower.
"Stocks fell sharply on Tuesday in the biggest decline since the October rout as investors worried about a bond-market phenomenon signaling a possible economic slowdown. Lingering worries around U.S.-China trade also added to jitters on Wall Street.
"The Dow Jones Industrial Average fell 799.36 points, or 3.1 percent, to close at 25,027.07 and posted its worst day since Oct. 10. At its low of the day, the Dow had fallen more than 800 points.
"The S&P 500 declined 3.2 percent to close at 2,700.06. The benchmark fell below its 200-day moving average, which triggered more selling from algorithmic funds. Financials were the worst performers in the S&P 500, plunging 4.4 percent. Utilities was the only positive sector in the S&P 500, rising 0.16 percent.
"The Nasdaq Composite dropped 3.8 percent to close back in correction territory at 7,158.43. The Russell 2000, which tracks small-cap stocks, dropped 4.4 percent to 1,480.75, marking its worst day since 2011. Trading volume in U.S. stocks was also higher than usual on Wall Street.
"The yield on the three-year Treasury note surpassed its five-year counterpart on Monday. When a so-called yield curve inversion happens — short-term yields trading above longer-term rates — a recession could follow, though it is often years away after the signal triggers. Still, many traders believe the inversion won't be official until the 2-year yield rises above the 10-year yield, which has not happened yet.
"Stocks began falling to their lows of the day after Jeffrey Gundlach, CEO of Doubleline Capital, told Reuters this inversion signals that the economy 'is poised to weaken.'
"The flattening yield curve caused investors to bail on bank stocks on concern the phenomenon may hurt their lending margins. The SPDR S&P Bank ETF (KBE) dropped 5.3 percent. Shares of J.P. Morgan Chase, Citigroup and Bank of America all declined more than 4 percent. Citigroup and Morgan Stanley both reached 52-week lows along with Regionals Financial, Citizens Financial and Capital One.
"The SPDR Regional Banking ETF dropped 5.5 percent and closed 20 percent below its 52-week high. It also notched its worst day since June 2016.
"'No good deed goes unpunished,' said Art Hogan, chief market strategist at B. Riley FBR. 'As we get headwinds from trade worries fading, you get an inverted yield curve and another brick added to the market's wall of worry.'
"Trading volume rose on Tuesday... These moves come as the U.S. stock market will be closed on Wednesday out of respect for former President George H.W. Bush's funeral.
"'You can see the utilities positive on the day, but financials are getting hammered on the flatter curve while industrials are likely down on the tariffs headlines,' said Jack Ablin, founding partner of Cresset Wealth.
"Doubt about a permanent deal between the U.S. and China crept into investors' minds following a stellar rally in the previous session.
"The U.S. and China agreed over the weekend to hold off on any additional tariffs on each other's goods, in order to allow trade talks to continue... The news sent stocks surging on Monday...
"But discrepancies over when that truce would begin have led to confusion. While President Donald Trump's economic advisor, Larry Kudlow, told reporters Monday that the cease-fire would start from Jan. 1, the White House later issued a corrected statement saying that the 90-day truce period started on Dec. 1.
"China and the U.S. have been engaged in a tense sparring match over trade, with both countries hitting each other's economies with levies on imported goods. Trump's administration has so far slapped tariffs on $250 billion worth of Chinese imports, while Chinese President Xi Jinping's government has imposed tariffs on $110 billion in U.S. goods.
"Trump said in a series of tweets Tuesday that a deal between the two countries would get done if possible. 'But if [it's] not possible remember ... I am a Tariff Man.'" ("Dow plunges nearly 800 points on rising fears of an economic slowdown," Fred Imbert, CNBC, 12/04/18.)
Market plunge reveals growing investor pessimism in US economy - Daco
Geopolitical tensions continue causing uncertainty and investors grow pessimistic in the economy.
"Markets had a rough day Tuesday with the S&P 500 index falling more than 3 percent, the Dow Jones Industrial Average shedding 800 points, and the 10-year Treasury yield falling to 2.91 percent — its lowest in three months.
"While there is, as always, a confluence of factors influencing market fluctuations, excessive U.S. growth pessimism and excessive post-Group of 20 (G20) trade optimism carry a large portion of the blame.
"While the G20 meeting between President Trump and Chinese President Xi Jinping was a success in that the threatened escalation of trade tensions was pushed back 90 days, conflicting post-meeting communication and Trump stating that he was a 'Tariff Man' left many investors worried about rising protectionism.
"Indeed, beyond the political spin, it is difficult to foresee an imminent and substantial trade deal between the two economic giants. Addressing the structural issues related to forced technological transfers, intellectual property protection, industrial subsidies and market access in China will instead require lengthy negotiations and patience.
"But still, while 2019 will likely feature increased trade protectionism, October's 10-percent market correction and Tuesday's combined decline in stocks and Treasury yields reveals excessive growth pessimism.
"Looking ahead, though, this divergence between markets and the economy could persist, driven by unsynchronized global growth, elevated and rising trade tensions, technology sector troubles, oil turbulences and the Federal Reserve's tightening of monetary policy.
"On the global front, there are similarities between the recent bout of temporary economic decoupling and the one that was present in 2014-2015.
"On the trade front, policy uncertainty remains extremely elevated in the wake of the Trump-Xi meeting. While the two leaders negotiated a three-month tariff time-out, President Trump subsequently tweeted that in the absence of a deal with China, he would 'be charging major Tariffs against Chinese product being shipped into the United States,' stocking renewed investor fears.
"Indeed, the most under-appreciated paradox in U.S. trade policy today is that increased protectionism is hurting the very companies the U.S. administration wants to protect from unfair trade practices.
"Most visibly, the imposition of tariffs on key inputs like semiconductors is leading to heightened cost for the tech sector and disrupting global supply chains.
"In addition, there is a less visible, but increasingly active effort by the Treasury Department's Committee on Foreign Investment (CFIUS) to scrutinize U.S. exports as well as foreign direct investment in certain new technology sectors, such as artificial intelligence and robotics.
"A request for notice published on the Federal Register last week gives businesses 30 days to comment on new export-control rules. These rules could have a severe impact on U.S. exports, business investment and GDP, if imposed.
"The energy sector has also come under pressure of late with Brent crude price falling nearly $25 to the low $60 per barrel since its early October peak.
"A combination of strong U.S. oil output due to smaller-than-expect transportation bottlenecks, firmer Organization of Petroleum Exporting Countries (OPEC) production owing in part to waivers granted for Iran's oil exports and weakened demand have helped push prices lower.
"With OPEC producers facing a dilemma of either cutting production to support prices but losing market share or maintaining production but losing revenues, the lead-up to Thursday's OPEC meeting remains turbulent for markets.
"All of these developments have made the Federal Reserve's monetary policy normalization process even more interesting going into 2019. Indeed, while the Fed's main focus remains the state of the economy, it is not indifferent to market movements, especially those that affect the economy.
"Balancing a desire to tighten monetary policy gradually to avoid rising inflation and the development of financial market imbalances with the need to avoid excessive tightening that risk stoking market instability is not an easy task..." ("Market plunge reveals growing investor pessimism in US economy," Gregory Daco, The Hill, 12/05/18.)
Gold rises as stocks sell-off continues - Reuters
Continued sell-off in equities has gold prices rising and a yield curve inversion is positive in the long run for safe-haven assets.
"Gold prices rose on Thursday as investors sought safety from an ongoing sell-off in equities... Spot gold rose 0.37 percent to $1,242.46 per ounce...
"The rise in gold took place as another sell-off in U.S. equities unfolded. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite were all down more than 2 percent.
"Gold was little changed earlier as investors looked ahead to a U.S. Federal Reserve meeting later this month. Policymakers are to gather at a Dec. 18-19 meeting, at which the central bank is widely expected to raise interest rates.
"'Although a rate hike is already priced in, markets will be closely watching the meeting for clues on rate-hike timings in 2019,' said Lukman Otunuga, a research analyst at FXTM, adding that: 'if the meeting echoes a similar message to (Chairman Jerome) Powell's dovish shift, gold has the potential to shine into 2019.'
"The spread between the two-year and five-year Treasury yields inverted this week and the two-year/10-year spread was at its flattest in more than a decade amid a sharp fall in long-term rates.
"'A yield curve inversion indicates higher borrowing cost in short term, so for safe-haven assets in the longer run it's going to be very positive,' said Benjamin Lu, a commodities analyst with Phillip Futures in Singapore.
"Meanwhile, palladium prices stayed near gold's after outshining the yellow metal for the first time since 2002 on Wednesday, with prices soaring by around 50 percent in less than four months to record levels. Spot palladium dropped 4.65 percent to $1,185.70 per ounce, still hovering near its record high hit in the previous session.
"The market now awaits Friday's U.S. nonfarm payrolls data for November, which is expected to show unemployment remains at 3.7 percent.
"'Investors are seen adopting a cautious stance ahead of the U.S. jobs report which could offer insight over the health of the U.S. labour force,' said Otunuga of FXTM." ("Gold rises as stocks sell-off continues," Reuters, CNBC, 12/06/18.)
Gold Will Rally 22% in 2019 and Outperform Everything - Cambone
One analyst sees 2019 as the start of a bull cycle for gold and gold at $1,500 an ounce.
"2019 will see the start of a new bull cycle for gold and push the metal up to $1,500 an ounce, said E.B. Tucker, director of Metalla Royalty & Streaming.
"'To make big money in this market, you have to see the cycles. Nothing changes. We've had three big cycles in gold since 2000 and we're about to have another one,' Tucker told Kitco News.
"Tucker said that the next cycle peak could reach $1,900 an ounce, but that won't happen next year.
"'We're calling for $1,500 next year, that's a 22% increase in the price of gold, it'll be one of the best performing markets in a very, very volatile year for equities,' he said.
"On sentiment, Tucker said that low investor interest in gold could be good, as it signals that gold is not at overvalued levels like bitcoin and cannabis stocks were.
"'You've seen things blow up. The cannabis bubble has popped and the stocks are declining. Cannabis business is ok, but the stocks are going down. The bitcoin bubble has definitely popped, we called that last year, it's down 70% this year,' he said.
Overvalued sectors have been driven by dogma, or the belief that things should be a certain way, which is not the case for gold, Tucker noted.
"'For gold, there's no dogma. Everyone knows something could go wrong, it already has gone wrong, people are really negative, and basically no one owns gold. The field is very thin,' he said." ("Gold Will Rally 22% in 2019 and Outperform Everything," Daniela Cambone, TheStreet, 12/06/18.)
Arrest of Top Tech Executive Sends Stocks Lower - Stevenson and Phillips
The arrest of China's top technology executive added to the edge investors already face due to the possible trade war and resulted in lowered stock prices around the world.
"The arrest of a top Chinese technology executive intensified concerns about an emerging cold war between the world's two largest economies, sending stock markets around the world lower on Thursday.
"The chief financial officer of the Chinese telecom giant Huawei, Meng Wanzhou, was arrested on Saturday as President Trump and President Xi Jinping of China agreed to a trade truce. A trade deal between the United States and China, which was already facing tense negotiations, looks even more complicated in the wake of the arrest.
"The trade war has set investors on edge. The markets have been rattled about the prospect that the conflict with China would begin to impact the economy at home at a time when global growth is slowing. Few parts of the markets have been left unscathed, with the S&P 500-stock index in negative territory for the year. Markets in Europe and Asia have also faced steep declines.
"This is going to continue to be a headwind at a time when people are worried about global growth," said Dan Clifton, a head of policy research with analysis firm Strategas.
"Ms. Meng was arrested in Vancouver on Saturday. United States authorities are seeking Ms. Meng's extradition but have not said what prompted the arrest.
"But it could pose substantial risks for large American technology companies that have driven major gains for American investors in recent years.
"Apple, Amazon and Facebook all declined by more than 2 percent on Thursday. Apple's tumble came as analysts from UBS cut their price target for the stock, citing survey data that showed declining interest among consumers to buy iPhones. Plans to buy iPhones hit a new low among Chinese consumers, UBS analysts noted.
"But the pain spread beyond technology stocks, with the S&P 500 energy sector seeing an even steeper slump. Exxon Mobil and Chevron both dropped more than 2 percent in early trading, amid an ongoing sell-off in crude oil markets.
"Benchmark American oil prices were down more than 4 percent on Thursday, with prices nearing $50 a barrel... Persistently weak prices for crude oil have raised questions about the strength of the global economy. In Europe, growth has slowed amid ongoing uncertainty surrounding Britain's exit from the European Union and the chance that Italy's populist government is gearing up for a showdown with Brussels over budgetary issues.
"Even economic powerhouse Germany, the standout economy on the Continent, contracted during the third quarter, as the uncertainty over global trade crimped its export-focused economy. European stocks tumbled sharply on Thursday, with indexes in Germany, France and Britain all falling more than 3 percent.
"Many of Germany's exports go to China, where economic growth has slowed to the most sluggish pace in a decade, amid the ongoing trade tensions with the United States.
In Asia, all major markets ended the trading day down more than 1 percent, and several slid further.... In Tokyo, the market fell nearly 2 percent after the governor of the Bank of Japan warned that the trade war would hurt the Japanese economy. Traders in Seoul, South Korea, pushed the market down more than 1.5 percent; stocks in Taiwan were down 2.3 percent.
"'The world economy is still expanding at a rapid pace, but cracks are starting to appear in the global growth picture,' Brian Coulton, a chief economist at Fitch Ratings, wrote in a note to clients. Fitch has repeatedly warned of China's debt binge and the challenges facing the second-largest economy after the United States.
"As stocks tumbled on Thursday, investors shifted money into the safety of American government bonds, pushing the yield on the United States 10-year Treasury note sharply lower, to 2.85 percent. (Bond yields move in the opposite direction of prices.)
"Those lower yields can crimp the profitability of banks, which charge interest rates that are based on government bond yields. The threat of such pressures has hammered American financial stocks in recent days. The S&P 500 financial sector index was the worst performing part of the market on Thursday, tumbling more than 3.5 percent before midday.
"... a series of tweets from Mr. Trump, who called himself "a Tariff Man" prompted a new round of selling on Tuesday. Markets in the United States were closed Wednesday to honor the death of former president George H.W. Bush. The only thing that seems certain is more uncertainty, analysts said.
"'While the likelihood of an ongoing dialogue after months of no discussions and the pause on tariffs are still positive developments, it's clear that negotiations will be challenging and a source of volatility,' Mark Haefele, chief investment officer at UBS wealth management, said in a note to clients. ("Arrest of Top Tech Executive Sends Stocks Lower," Alexandra Stevenson and Matt Phillips, The New York Times, 12/06/18.)
Why the stock market is freaking out - Egan
Investors should be ready for more market volatility as concerns of a trade war remain and a flattening yield curve is concerning for the economy.
"Extreme fear is once again sending Wall Street into chaos. Investors are debating whether the longest bull market in American history is nearing an end or just taking a breather.
"From 'Tariff Man' tweets and inverting yield curves to conflicting messages from Trump advisers and the arrest of a Chinese executive, there is no shortage of headlines keeping investors awake at night.
"After booking its best week since 2011, the S&P 500 plunged 3.2% Tuesday and tumbled again Thursday before staging a massive recovery. Stocks fell sharply on Friday after Trump officials Larry Kudlow and Peter Navarro contradicted each other on trade.
"No matter the catalyst, the overarching fear is over just how long the economy has until the next recession strikes. Months? Quarters? Years?
"'Markets are fully convinced we are in the last stages of an economic cycle,' Nicholas Colas, co-founder of DataTrek Research, wrote in a note to clients. 'Traders are feverishly looking for the dry tinder that will turn a simple short circuit into a full-blown conflagration.'
"Signs of worry abound. The Fear & Greed Index, a CNN Business gauge of market sentiment, is flashing "extreme fear." Germany's stock market is flirting with a bear market. Oil prices are already there. The VIX volatility index (VIX) has spiked 22% this week. And the S&P 500 is on track for its worst quarter in seven years.
"We're at a very confusing point for the economy,' said Kristina Hooper, global market strategist at Invesco. 'It's not as predictable as it was last year when growth seemed a lot more potent.'
Enter Tariff Man
"Hopes of a truce in the US-China trade war have faded into worries of an escalation. Investors only briefly celebrated the ceasefire reached by President Donald Trump and Chinese President Xi Jinping at last week's G-20 summit.
"Trump fueled doubt about the sustainability of trade peace on Tuesday when he called himself a 'Tariff Man' in a tweet.
"The Dow plummeted 799 points on Tuesday and analysts pointed to Trump's tweet as one of the catalysts.
"The president also suggested tariffs will 'MAKE AMERICA RICH AGAIN,' despite the fact that these levies are paid by American companies and consumers.
"'The payment comes from my pocket and yours,' David Kotok, chairman and chief investment officer at Cumberland Advisors, wrote to clients on Thursday. 'In a trade war the guns are pointed inward. No one wins.'
Is the trade war getting better or worse?
"Stocks tumbled again on Thursday after the arrest in Canada of Huawei CFO Meng Wanzhou, though they rallied back later in the day. Meng is the daughter of one of founders of Huawei, a company that has been likened to the Apple of China. The arrest, at the request of the United States, opens up a new avenue in the trade war that investors had been hoping for relief from.
"'This arrest suggests that as opposed to getting better, things are getting worse,' said Joe Quinlan, chief market strategist at Bank of America's US Trust.
"Meanwhile, one of Wall Street's favorite recession indicators is suddenly flashing yellow. The gap between two-year and 10-year Treasury yields has narrowed to levels unseen since just before the Great Recession.
"Investors are getting nervous that the yield curve will invert, meaning short-term rates are higher than long-term ones. That has in the past been a reliable prognosticator of recessions.
"At a minimum, the flattening yield curve reflects concerns over slowing growth and a Federal Reserve that could be raising borrowing costs faster than the economy can handle.
"And the phenomenon makes it harder for banks to make money. The SPDR S&P Regional Banking ETF (KRE) has plunged nearly 6% this week. Big banks like Citigroup (C) and Bank of America (BAC) are down even more.
"Even though investors are watching for the next recession, the underlying fundamentals of the economy look solid, if not strong.
"Rather than an imminent downturn, investors seem to be preparing for a more treacherous horizon. Economic and profit growth are projected to slow in 2019 and some economists have warned of a recession in 2020.
"In the meantime, investors should brace for more volatility. Turbulence is par for the course in late-cycle markets." ("Why the stock market is freaking out," Matt Egan, CNN, 12/07/18.)