Expect higher Gold Prices For The Rest Of The Year

Release Date:  Friday, October 19, 2018

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Gold and Silver Prices

Gold closed higher on Friday and secured a third weekly gain as the dollar softened and the stock market weakened.

"Spot gold added 0.14 percent to $1,226.66 per ounce. The metal gained 0.7 percent this week, after hitting a 2-1/2-month high at $1,233.26 on Monday.

"'Gold has done really well to hold up here, given the Fed was really hawkish. Sensitivity to equity markets is helping gold at the moment,' Macquarie commodity strategist Matthew Turner said.

"'We are entering a new paradigm, where any further rate hike could be a sign that the economy is overheating a bit, which should be more positive for gold and problematic for equities.'

"The recent sell-off in global stock markets has boosted gold's appeal, as some investors see it as a safe store of value during political and economic uncertainty." ("Gold posts third weekly gain as stocks dip," Reuters, CNBC, 10/19/18.)

Gold ended the week up $9.20, closing at $1,226.50. Silver ended the week up $0.02, closing at $14.60.

Expect higher Gold Prices For The Rest Of The Year- Analyst - Golubova

One gold bull sees three triggers that will be a positive for gold prices in the near term.

"A trifecta of factors will keep gold prices higher for the rest of the year, according to one gold bull.

"'Last week, the macro backdrop produced an ideal cocktail for gold spot prices. The dollar was down, U.S. real rates were down, and U.S. equities were down. This "sweet" triptych elicited a strong increase in monetary demand for gold...," Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post earlier this week.

"More good news for gold is that Mikanikrezai sees all three triggers - U.S. dollar, U.S. real rates, and U.S. equities - declining in the near term, creating a healthy positive environment for the yellow metal.

"'U.S. equities could witness more downside as overhyped expectations of earnings are being corrected. In turn, the market would expect the Fed to adopt a less hawkish stance as a result of a "natural" tightening of domestic financial conditions (through a de-rating across risk assets), and ergo, the dollar and US real rates would push lower,' he said.

"Gold prices hit a 10-week high earlier this week, following last week's rally that saw gains of more than $29 in one day, its best day since 2016. ("Expect Higher Gold Prices For The rest Of The Year - Analyst," Anna Golubova, Kitco News, 10/18/18.)

China's stock market is getting pummeled and history shows that is bad news for US markets - Domm

Big drops in the Chinese market can mean significant decline for U.S. stocks and big company names. 

"When China's stock market falls sharply, there's a good chance U.S. stocks - and some big blue chip names like Goldman Sachs and Caterpillar - go down with it.

"The Shanghai Composite Index plunged 2.9 percent Tuesday, sending negative ripples through world markets. China stocks are now down 12 percent in October and 26 percent over the last 12 months.

"But U.S. investors feel insulated from China's losses. Why wouldn't they, with the S&P up 4.5 percent this year while Shanghai is down 25 percent?

"But a study by CNBC using analytics tool Kensho found that U.S. stocks are more often weaker when the declines in Chinese stocks are large. Over the past 10 years, when Shanghai stocks fell 10 percent or more in a 30-day period, the U.S. stock market was up only about 30 percent of the time, and the U.S. indexes all averaged significant declines.

"For instance, the S&P 500 on average fell 4.8 percent when China was down 10 percent or more, and the Nasdaq was even worse with a loss of 5.3 percent.

"When it comes to individual stocks, Goldman Sachs stock lost 10.6 percent on average over the 30-day periods, and was higher only 18 percent of the time. Caterpillar revenues are closely tied to China, and it was down 7.9 percent on average in those periods with gains only 20 percent of the time. DuPont lost 9.3 percent on average, and was higher just 17 percent of the time.

"Caterpillar helped lead the Dow lower on Thursday, falling more than 3 percent.

"As Shanghai stocks went down, so did basic commodities, like copper, off 8.3 percent, and oil, off 8.5 percent on average in the 30-day periods. Crude oil was down nearly 70 percent of the time when Chinese shares toppled, and copper was down 78 percent of the time. Safe havens, however, averaged gains and gold rose by 0.6 percent while the dollar index was up 1.5 percent. Both were higher more than half the time." ("China's stock market is getting pummeled and history shows that is bad news for US markets," Patti Domm, CNBC, 10/18/18.)

Gold Prices Lifted By Geopolitical Worries - Wyckoff

With the different geopolitical tensions around the world, gold has traded higher.

"Gold prices are trading modestly higher in early-afternoon U.S. trading Thursday. Today, a host of worries on the geopolitical front rose to the surface to put strong pressure on the U.S. stock market and produce some safe-haven demand for gold, which began to surface in late-morning action...

"Saudi Arabia, U.S.-China relations, the European Union and rising bond yields spooked the marketplace today.

"Traders and investors are awaiting the results of a Turkish investigation into the disappearance of a Saudi journalist. The Turks say the journalist was killed and the Saudis deny knowing anything about it. This matter is likely to come to a head in the next few days, with President Trump saying results of the investigation are likely yet this week. If the Saudis are complicit, ramifications for the world markets will be significant. Some press reports say the Saudis killed the journalist. Just today, U.S. Secretary Mnuchin has just pulled out of a business conference in Saudi Arabia, following the lead of several U.S. business executives.

"There are also new concerns about the viability of the European Union as Italy makes waves about falling in line with EU by-laws.

"U.S. Treasury bond yields are on the rise again following FOMC minutes released Wednesday afternoon that were deemed a bit hawkish on U.S. monetary policy.

"And a former U.S. Federal Reserve official, Stanley Fisher, today warned about the negative economic impact of a protracted trade war between the U.S. and China.

"The key outside markets today find the U.S. dollar index higher on safe-haven buying and a slumping Euro currency. Meantime, November Nymex crude oil prices are lower, hit a four-week low and are trading just above $69.00 a barrel. Brent crude oil has now fallen below the $80.00-per-barrel level. Rising U.S. oil stockpiles this week are bearish for the oil market.

"Technically, the gold bulls have the overall near-term technical advantage. Gold bulls' next upside near-term price breakout objective is to produce a close in December futures above solid technical resistance at $1,250.00...

"..Silver bulls' next upside price breakout objective is closing prices above solid technical resistance at $15.00 an ounce..." ("Gold Prices Lifted By Geopolitical Worries," Jim Wyckoff, Kitco News, 10/18/18.)

Kamala Harris and other prominent Democrats want to repeal Trump's tax cuts and replace them with cash payouts for the poor and working class - Mui

With midterm elections close, Democrats want a new tax plan in place of President Trump's plan and cuts.

"With midterm elections 2½ weeks away and the 2020 presidential race around the corner, prominent Democrats are embracing an ambitious idea: Repeal and replace the $1.5 trillion Republican tax plan.

"The proposals would get rid of the tax cuts and, in turn, funnel that money into government-guaranteed cash for low- and middle-income households.

"Sen. Kamala Harris, D-Calif., announced a plan this week that would give working families up to $6,000 each year, with the option of receiving monthly payments. Sen. Sherrod Brown, D-Ohio, and Rep. Ro Khanna, D-Calif., outlined a similar idea last year. A bill from Rep. Bonnie Watson Coleman, D-N.J., would allow stay-at-home parents and students to receive the money as well.

"'The idea was to provide a clear contrast with Donald Trump,' Khanna told CNBC in an interview. 'You know what you could actually do with this money? You could give anyone making under $75,000 a raise.'

"The measures are significantly more dramatic than some previous Democratic proposals - a reflection of the proximity to the midterm elections and the early interest surrounding the presidential race in 2020. Harris and Brown are potential contenders for the White House, and Democrats have been seeking bold ideas to present to their energized electorate.

"'There's all kind of evidence that voters are not looking for incremental solutions,' said Adam Ruben, campaigns director at the Economic Security Project, a liberal think tank that has pushed the idea. 'They're looking for a big vision of how to pick up all the people who have been left behind in this economy.'

"Harris' plan would create a new tax credit of up to $3,000 for individuals or $6,000 for households. They could opt to receive the money in a lump sum after filing their annual tax return or in monthly installments of $250 to $500, which Harris said could help reduce reliance on payday lenders. The credit would be refundable, which means workers would receive the money even if they don't owe any taxes. Households earning up to $100,000 would be eligible.

"'We've seen the debate shift,' Khanna said. 'My hope is that other presidential candidates will look at the Brown plan and embrace it as the alternative to Trump.'

"Ruben said his organization has spoken with other potential Democratic candidates about the idea but declined to specify whom. Earlier this year, Senate Democrats announced a more modest proposal to roll back the GOP tax cuts: Move the top tax rate for individuals back to 39 percent, raise the corporate tax rate 4 percentage points to 25 percent and reinstate the alternative minimum tax.

"Rep. John Delaney, D-Md., who has announced he is running in 2020, has called for nudging the corporate tax rate up to 23 percent to pay for $1 trillion in infrastructure spending. He told CNBC he also supports expanding the earned income tax credit but did not say by how much. 'We must reform our tax code in a way that is fiscally responsible, addresses our long-term economic competitiveness needs and helps working families,' he said in a statement.

"Indeed, the new tax credits come with a hefty price tag. Brown and Khanna's plan is expected to cost about $1.4 trillion - just about what the Republican tax plan costs. Harris' bill is likely to be in the same ballpark. That's why liberals say repealing the current law is a critical component of their plan.

"Yet Democrats have repeatedly attacked the GOP tax cuts for ballooning the deficit. And while they argue that the new credits would support long-term economic growth, they are not claiming such a plan would pay for itself.

"Republicans are preparing for battle.

"The conservative Heritage Foundation released an analysis this week showing repealing the tax cuts in 2020 would cost the average household nearly $27,000 in lost take-home pay over the next decade. Some of the decline is due to higher individual tax rates, said Adam Michel, a policy analyst at Heritage and one of the authors of the report. But most of it is the result of lower economic growth because of higher corporate rates, he said.

"'That's where a lot of the juice comes from," Michel said. "That's the thing I'm frankly most concerned about.'

"Democrats have also criticized the GOP for passing its sweeping tax plan with a party-line vote. Yet it seems unlikely that any Republicans would support repealing and replacing what GOP leadership has dubbed the 'crown jewel' of its legislative agenda.

"'The tax cuts launched our booming economy into the stratosphere and anybody advocating for repeal will have to explain why they want to reverse the jobs and wage growth our country has seen since the law passed,' said John Ashbrook, a Republican strategist who worked under Senate Majority Leader Mitch McConnell.

"The Nov. 6 elections will be a testing ground for the Democratic agenda, and Economic Security Project's Ruben said the Democratic Party will need fresh thinking to connect with voters in 2020. 'People want to feel the confidence that someone is going to fight for them and push for big changes and not let classic Washington gridlock or the constrained sense of what is acceptable in politics get in the way,' he said. ("Kamala Harris and other prominent Democrats want to repeal trump's tax cuts and replace them with cash payouts for the poor and working class," Ylan Mui, CNBC, 10/19/18.)