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Gold gains as Chinese trade data blow dents risk appetite

Release Date:  Friday, January 18, 2019

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Gold and Silver Prices

Gold closed lower on Friday and was unable to sustain a fifth consecutive weekly gain as investors, due to growing hopes for a resolution in the china-U.S. trade war, stepped into riskier assets including stocks which gave equities and the U.S. dollar a lift.

"The gold price is moving lower today as [risk-on] investors are optimistic about the U.S.-China trade deal despite the fact the Treasury has denied all the recent rumors. But the fact is that Washington and Beijing want to make the deal now and it appears that they have understood the consequences of this turmoil," said Naeem Aslam, chief market analyst with Think Markets.

"However, investors should not take their eyes off from the Brexit chaos, because we have no idea yet which way we are heading and this has impacted the growth in the U.K. and in Europe," he added.

"There is just one word to describe today's gold price fall: fatigue," said Chintan Karnani, chief market analyst at Insignia Consultants. He said an inability of spot gold to break and trade over $1,300, may be the root of the pullback. "There were all kinds of very high positive news for gold, but spot gold did not break past $1,300."

"Karnani believes that investors are 'focused on political news and ignoring fundamentals and economic news,' and said that the 'global trade war is not yet over.'" ("Gold finishes lower to log first weekly loss since mid-December," Myra P. Saefong, MarketWatch, 01/19/19.)

Gold ended the week down $5.50, closing at $1,281.30. Silver ended the week down $0.26, closing at $15.31.

Gold gains as Chinese trade data blow dents risk appetite - Reuters

U.S. stocks dropping along with falling China exports gave a boost to gold which has traditionally been a hedge against economic and political uncertainty.

"Gold prices rose on Monday as global stocks fell on data showing China exports unexpectedly fell, pointing to further weakening in the world's second-largest economy and prompting investors to seek safety in the precious metal. Spot gold rose 0.3 percent to $1,291.39 per ounce at 1:48 p.m. ET..."

"'The fact that U.S. stocks have opened lower and weak macro numbers from China on the trade figures today has been helpful for gold,' INTL FCStone analyst Edward Meir said.

"The faltering stock markets and weak Chinese data imply economic conditions could worsen during the course of the year, he added.

"Chinese exports fell by their most in two years in December, alongside a significant contraction in imports, data showed on Monday, hitting stock markets and highlighting fears of a sharper slowdown in global growth.

"Gold, which is often used as a hedge against economic and political uncertainty, has also been helped by concerns surrounding an impending vote on Britain's exit from the European Union and a prolonged partial government shutdown in the United States.

"'If the partial government shutdown continues, it will eventually weigh heavily on equity prices, sending more investors over to the gold and bond markets," Walter Pehowich, executive vice-president of investment services at Dillon Gage Metals, said in a note.

"Spot gold has gained more than 11 percent since hitting a 1-1/2-year low in mid-August at $1,159.96.

"Extension of the shutdown and the subsequent slowdown in the United States economy 'contributes to the fact that the U.S. Federal Reserve will likely not raise rates at all this year,' INTL's Meir said.

"The metal was propped up last week by Fed Chairman Jerome Powell, who reaffirmed that the central bank could remain patient on monetary policy, downplaying suggestions that interest rates would be raised twice more this year.

"Investors will now be eyeing developments on trade between the United States and China, with U.S. officials expecting a visit by Beijing's top trade negotiator this month after mid-level discussions between the two countries ended on a seemingly positive note." ("Gold gains as Chinese trade data blow dents risk appetite," Reuters, CNBC, 01/14/19.)

Gold And Commodities Set To Soar in 2019 - Holmes

Most bullish on gold is Goldman Sachs with a forecast of up to $1,425 an ounce in the next twelve months and the World Gold Council predicting gold will be a favorable diversifier and hedge.

"Palladium was the best performing commodity for the second year in a row, returning 18.59 percent in 2018 after ending the previous year up a phenomenal 56.25 percent. As we've noted before in the Investor Alert and elsewhere, palladium and gold prices are now near parity, with a razor-thin spread of only around $2 separating the two at the moment. Late last year, the white metal actually overtook the yellow metal for the first time since 2001 on increased demand from automobile manufacturers. More than 80 percent of world supply is used in the production of catalytic converters.

"Not to be outdone, gold ended 2018 on a high note, beating global equities and commodities for the fourth quarter. And as I mentioned before, it was the sixth most liquid asset class, with daily trading volumes nearly identical to that of S&P 500 companies.

Goldman Bullish on Gold, Forecasts $1,425

"With a majority of investors now betting that the current rate hike cycle has peaked, the U.S. dollar looks to be in retreat, having lost about 1.7 percent over the past month. Mike McGlone, commodity strategist at Bloomberg Intelligence, writes that he believes the '2019 dollar downtrend has legs.' This is constructive for metals and commodities in general, gold specifically. On Friday, in fact, the yellow metal achieved a "golden cross," whereby the 50-day moving average crosses above the 200-day moving average-a very bullish sign.

"Among those that are most bullish on the precious metal is Goldman Sachs. In a report last week, the investment bank maintained its overweight recommendation and raised its 12-month price forecast up from $1,350 an ounce to $1,425, a level last seen in August 2013. Goldman analysts contend that the gold price 'will be supported primarily by growing demand for defensive assets, with a slower pace of Fed rate hikes in 2019 boosting demand only marginally.'

"The World Gold Council (WGC) made a similar case in its 2019 outlook last week, predicting that global investors will 'continue to favor gold as an effective diversifier and hedge against systemic risk.' The rise in protectionist policies around the world is chief among the risks since they tend to lead to higher inflation and slower economic growth over the long term, according to the WGC.

"I believe the current government shutdown, over funding for a wall along the southern border, is evidence of the risks protectionist policies pose. Now the longest in U.S. history, and with no end in sight, the shutdown could start to take a toll on the economy the longer it lasts, according to Federal Reserve Chair Jerome Powell, and perhaps even cost the U.S. its triple-A credit rating." ("Gold And Commodities Set To Soar in 2019," Frank Holmes, Forbes, 01/14/19.)

Another Billionaire Turns Ro Gold - Christensen

Many billionaires like gold in the current environment and are also turning to gold as a hedge. 

"Another billionaire has jumped on the gold bandwagon after Sam Zell, the founder of Equity Group Investments, announced on Bloomberg TV that he bought gold for the first time in his life.

"'Supply is shrinking and that is going to have a positive impact on the price,' he said in the interview.

"Zell said that the amount of capital being put into new gold mines is almost nonexistent. 'All of the money is being used to buy up rivals,' he said.

"Zell added that he also likes the physical metal as a hedge.

"Along with Zell, other billionaires who have said they like gold in the current environment include Ray Dalio, founder of Bridgewater Associates; "bond king" Jeffrey Gundlach, CEO of Doubleline; and David Einhorn; founder of Greenlight Capital.

"Dalio has been a firm believer in the yellow metal since August 2017, when he said that investors should have between 5% and 10% of their portfolio in gold.

"Last spring Gundlach made headlines after he said that gold was on the precipice of a $1,000 rally.

"David Einhorn has been a long-term holder in gold, which was one of his firm's largest positions as of the third quarter.

"'The smart money is buying gold,' said Fred Hickey, creator of the investment newsletter The High-Tech Strategist, in a Twitter post. 'Should be quite a frenzy when the rest of the (Western) world figures this out.'

"Many analysts have raised concerns about dwindling mining reserves and after years of cuts to exploration budgets, miners are slowly starting to put more capital in the ground. In November, S&P Global Market Intelligence said in a report that the gold-mining sector saw exploration budgets rise 20% in 2018 to 4.86 million." ("Another Billionaire Turns To Gold," Neils Christensen, Kitco News, 01/18/19.)

Gold will keep gleaming in 2019 - Gerner

Gold will be sought out as a safe haven with the volatility in the markets and gold will also benefit if raising interest rates are stopped by the Fed.

"The past few months have been good for gold. The recent tumble in equity markets, higher volatility and fears of further trouble on the trade front have all prompted investors to seek out a safe haven. While the FTSE All World index has lost 10% since its September peak, gold has gained 7% over the same time period.

"There is scope for further gains. If US Federal Reserve chairman Jerome Powell decides to stop raising interest rates, as he indicated he might, 'or even go the whole hog and cut them', gold could benefit, says Russ Mould, of platform AJ Bell. Such a policy reversal would reflect a weakening US and global outlook, bolstering gold's appeal as a safe haven.

"And because gold has no yield, its relative appeal grows when expectations of rate hikes dwindle. In addition, gold is widely seen as a hedge against inflation. With wages rising even as overall growth is slowing, stagflation could be on the cards, which would be excellent news for gold.

"Note too that central banks wanting to diversify their foreign-exchange reserves are expected to buy more gold than last year; they should account for 12% of global demand, reckons Capital Economics. Finally, there is now talk of backing cryptocurrencies with gold, as Carol Lewis points out in The Times. That's another reminder that gold has been a store of value and an alternative currency for centuries, while bitcoin is a fad." ("Gold will keep gleaming in 2019," Marina Gerner, Money Week, 01/18/19.)

Gold prices gleam amid Brexit and US shutdown uncertainty - Carlson

The government shutdown, softening in the Federal Reserve's policy and the view that the U.S. economy expansion is ending combined with the ongoing trade war and Brexit uncertainty are all reasons for a boost in gold.

"The longest government shutdown in US history shows no sign of ending, Brexit is roiling Europe, trade wars are still in the offing and the stock market is acting like a spooked cat. And once again, gold is shining.

"Gold often shines in times of trouble. The last time there was a showdown between a US president and Congress over government spending, gold prices shot up to an all-time high, about $1,925 an ounce. That was when a Republican-controlled House of Representatives, led by John Boehner, sparred with Barack Obama over whether to lift the debt ceiling or risk the US Treasury defaulting on its payments.

"Considering gold prices are hovering around $1,290 an ounce, it's highly unlikely they will return to those earlier heights quickly. But even when the government reopens, analysts say the metal's fortunes may soon sparkle after a few dull years.

"...Although spot gold prices - the figure in the current market - ended 2018 down about 1%, that was a better showing that the 6% loss for the Standard & Poor's 500 stock index.

"George Gero, senior managing director at RBC Wealth Management and a 35-year gold trader, said the late-year stock market weakness kick started gold's rebound, and the government shutdown fueled it.

"Adrian Day, president of Adrian Day Asset Management, who specializes in gold, said Democrats regaining control of the House of Representatives in November was very positive for gold because it suggested there would be gridlock in Washington. 'A government shutdown is gridlock on steroids,' he said.

"It's not just the shutdown that is boosting gold. Its biggest underpinning is an apparent softening in Federal Reserve policy, said Joe Foster, portfolio manager and strategist for VanEck's International Investors Gold Fund.

"The Fed has been raising interest rates, and previous expectations for 2019 were that the central bank would hike them again. But a more dovish tone by the Fed chair, Jerome Powell, in December and the release of Federal Open Market Committee meeting minutes, which suggest that the Fed may not be as aggressive in raising rates, were positive for gold, the analysts said.

"Foster said investor interest in gold was also spurred by the view that the US economic expansion may be ending, another key catalyst for gold.

"'To me there are two outcomes: either the Fed continues raising rates and they drive the economy into our next recession, [or] if they stop or reverse course, then we see weakness in the dollar. Both scenarios are good for gold,' Foster said. (Higher interest rates support the US dollar, and gold is dollar-denominated, meaning that when the greenback is strong, gold usually falters.)

"Day said investors are reviewing gold's traditional role as an insurance hedge and a portfolio diversifier after ignoring it for several years when stocks, bonds and the housing market were all strong. With those three markets showing signs of weakness, people are looking for alternatives, he added. And with cryptocurrencies like bitcoin having crashed from its own lofty levels in 2017, buyers are no longer considering that decentralized asset as a safe haven asset.

"Geopolitical concerns are particularly good for gold when prices are already on an upswing. The government shutdown between Bill Clinton and the former House speaker Newt Gingrich didn't affect gold because the overall atmosphere wasn't conducive; instead investors sought safety in cash. During the 1980 Iran hostage crisis, gold prices spiked because prices were already high. On Wednesday, US gold prices perked up slightly following the news the British parliament rejected Theresa May's Brexit plan in a historically lopsided vote.

"... the more uncertain things become, the more brightly gold will shine." ("Gold prices gleam amid Brexit and US shutdown uncertainty," Debbie Carlson, The Guardian, 01/18/19.)