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Gold prices skyrocketed this week, at one point rising above $1500 per ounce, as investors acquired the safe haven asset to protect against the Chinese trade war and a global economic downturn.
"Gold firmed above the key $1,500 pivot on Friday, en route to its best week since April 2016, as an escalation in the Sino-U.S. trade dispute and fears of a global economic slowdown triggered fresh interest for safe-haven assets...
"'The ongoing issues on the trade front have been battering markets for the course of this week,' ANZ analyst Daniel Hynes said. 'We continue to see that markets (are) pricing in further rate cuts on the back of rising trade tensions, certainly supporting investment demand (for gold).'
"Gold has risen more than 17% so far this year, and sprinted more than $100 over the past week, propelled by trade tension sand an increasingly dovish monetary policy shift by central banks amid fears of slowing growth...." ("Gold eyes best week in over 3 years on trade, global growth concerns," Nasdaq, 8/9/19.)
Gold ended the week at $1,497.20/oz. Silver closed at $17.03/oz.
Bank of America Merrill Lynch's Head of Metal Research, Michael Widmer, told Bloomberg viewers that gold is on the path to $2,000 per ounce within the next two years.
"Bank of America Merrill Lynch Head of Metal Research Michael Widmer sees gold rising towards $2000 an ounce in the next two years. ... That $2000 price target for gold, talk to us about how it gets there...
"There are two stages for [gold] to get higher from here. Our base case for the second quarter of $1500 is just simply a trade on more accumulations from central banks throughout the world. We've been bullish on gold since late 2018 ... we believe there are further cuts from the Fed and easing from other banks throughout the world.
"The other issue we have, this is the second phase, is that we are talking increasingly about 'quantitative failure.' That is basically a concept where the central banks try to reflate the economies and it hasn't really worked. But the element is that the more they try to stimulate economies, the more likely that inflation will ultimately come. The problem that you have is that if the markets become less enthusiastic and don't believe necessarily in that stimulus, you may see an increase in volatility and if that happens ... you can see gold prices spiking from our base case [to $2,000]...
"There is a strong correlation between central bank purchases and higher gold prices. And I think when you are looking at it right now, there is certainly strong incentive, particularly for emerging markets central banks to add gold to their reserves... The majority of central banks still want to add golds to their reserves...." ("BofAML's Widmer Sees Path to $2000 Gold in Two Years," Yahoo! Finance, 8/8/19; emphasis added.)
Frank Holmes, CEO and Chief Investment Officer at US Global Investors, stated that gold prices could easily reach $1900 per ounce due to negative real interest rates.
"[T]he old expression follow the trendlines not the headlines. And the trendline is very positive and constructive. And coming back onto this sort of global negative real interest rates, this is very bullish for gold. And we're seeing this show up in more and more central banks increasing their exposure to gold, a lot of rookies coming in. And if you look at Europe, it's Eastern European countries which are more conservative, Poland and Hungary, etc., they have been buying gold. And we're seeing the Russians continue to buy their gold, and we're seeing China continue to buy gold. So, I think that these negative real interest rates, it's a very bullish scenario for gold. And last time we had gold hit $1,900, what people don't realize is that the 10-year U.S. government bond was minus 300 basis points. That was the yield. Inflation was spiked that high. And real interest rates in the U.S. went positive. That is, what was the government paying on the 10-year money minus the CPI numbers are positive or negative is the real interest rate model. And then it went to plus 200 basis points. Well, gold fell to around $1,000, and now it's been rebounding back as rates are going negative again.
So, that's what they call the "fear trade." And when the U.S. dollar, which is the biggest economy in the world, all of a sudden starts going in that direction, negative interest rates while the rest of the world is, it propels gold and gold can easily go back to $1,900. And it just takes a while, and you're right, you're absolutely right, that a lot of times the headlines are on other news, it's not really bullish on gold. And there's a natural propensity for New York to be anti-gold, even when you have great hedge funds coming out and owners of these players coming out and saying they've increased their exposure to gold. Each month there's some new hedge fund this year that's a billionaire that's increased their exposure to gold...." ("Frank Holmes: Negative Real Interest Rates to Send Gold Soaring," FXStreet, 8/5/19.)
The analysts at Goldman Sachs Group Inc. wrote that gold prices are expected to rise to $1600 per ounce as portfolio managers increase their gold holdings.
"For Goldman Sachs Group Inc. analysts, gold's rally above $1,500 is just the beginning.
Analysts at the bank predict that prices already at six-year highs will climb to $1,600 an ounce over the next six months as investors seek havens. The dimming global economic outlook, fueled by heightening trade tensions between the U.S. and China are boosting gold's appeal as a hedge against financial turmoil...
"Bullion holdings in ETFs climbed to the highest since April 2013 amid a financial market meltdown that saw more than $700 billion wiped from the value of U.S. equities on Monday...
"Industrial production in Germany posted its biggest annual decline in almost a decade, adding to fears that the world economy could be moving closer to its first recession in a decade. In the Asia-Pacific region, central banks in New Zealand, India and Thailand made surprise interest-rate cuts as they sought to shield their economies from global headwinds. The moves came just a week after the Federal Reserve lowered U.S. borrowing costs for the first time in more than a decade... UBS Group AG and Citigroup Inc. are also bullish on gold, forecasting prices could rise to as high as $1,600." ("Goldman Sees Gold Prices Climbing to $1,600," Bloomberg, 8/7/19.)
CNBC reported that investors are rushing into gold due to a growing global panic about the world economies.
"Global growth worries and an intensifying trade war between the world's two largest economies sparked a stampede into perceived 'safe-haven' assets on Monday. Gold prices jumped more than 1% to hit their highest level in over six years on Monday ...
"The panic is seen spreading across to Wall Street too, with the Dow Jones Industrial Average expected to fall more than 380 points lower at the open. Meanwhile, China let the yuan breach the key 7-per-dollar level for the first time in more than a decade on Monday. It appeared to indicate Beijing would be prepared to tolerate more currency weakness that could further exacerbate the trade conflict with Washington.
"'The nervousness in financial markets over the falling renminbi (yuan) in recent weeks has reached panic levels,' Tom Elliott, international investment strategist at deVere Group, said in a research note published Monday...
"At times of market turbulence, investors tend to flee to assets expected to either retain or increase in value - such as gold ... These safe-haven assets are typically sought to limit one's exposure to losses in the event of a sharp market downturn...
"'I think we are in a sustained bull market now for gold and I think it can go way higher,' Philippe Gijsels, chief strategy officer at BNP Paribas Fortis, told CNBC's "Squawk Box Europe" on Monday. When asked whether he had a preference among the perceived safe-haven assets, Gijsels replied: 'I prefer gold....'" ("Global markets are in panic mode - sparking a wave of investment into gold, bonds and currencies," CNBC, 8/5/19; emphasis added.)
Banking giant JP Morgan issued a report telling investors to diversify out of currencies such as the U.S. Dollar into gold.
"Investors should diversify away from the U.S. dollar and increase their exposure to other major currencies and gold, according to a report from JP Morgan. In a recent market note, the bank stated that it sees the U.S. dollar losing its status as the world's dominant currency, and consequently depreciating in value...
"JP Morgan attributed the dollar's decline to China's emerging role as an economic power, a trend that can be traced back to after the Second World War, as China 'has been at the epicenter of [a] recent economic shift driven by the country's strong growth and commitment to domestic reforms. China is no longer just a manufacturer of low cost goods as a growing share of corporate earnings is coming from 'high value add' sectors like technology,' said JP Morgan commodities and rates strategist Craig Cohen...
"'In the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power,' he said. 'In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.' Recent data on currency reserve holdings revealed that central banks were increasingly diversifying away from the U.S. dollar, increasing their gold reserves at a record pace while also selling their dollars and buying euros, Cohen pointed out.
"'To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it," he said. The bank stated that the current economic environment suggests portfolios should allocate more diversified exposure to other G10 currencies, currencies in Asia, and gold." ("Ditch the Dollar, Buy Gold and Other Currencies: JP Morgan," Kitco, 8/6/19.)
Investment banker Morgan Stanley warns that the U.S.-Chinese trade war could cause a global recession within the next nine months.
"If the U.S. continues to raise a wall of tariffs on Chinese goods in the coming months and China responds, expect a global recession in three quarters, Morgan Stanley said Monday. 'As we view the risk of further escalation as high, the risks to the global outlook are decidedly skewed to the downside,' Morgan Stanley chief economist Chetan Ahya said.
"The firm believes a global recession will come in about nine months if the trade war further escalates through the U.S. raising tariffs to 25% 'on all imports from China for 4-6 months,' Ahya said. 'We would see the global economy entering recession in three quarters...'" ("Morgan Stanley: If the trade war escalates, a recession will be here in 9 months," CNBC, 8/5/19.)
Jeffrey Gundlach, CEO of $140 billion DoubleLine Capital, has raised the probability that the U.S. will slip into a recession within the next twelve months to 75%.
"Bond billionaire Jeffrey Gundlach, the CEO of $140 billion DoubleLine Capital, believes that the odds are increasing that the U.S. economy enters a recession in the coming months. In June, he upped the odds of a recession, placing the probability of one occurring in the next 12 months, at 65%. In a telephone interview with Yahoo Finance on Tuesday, Gundlach placed odds of a recession happening before the 2020 Presidential election at 75%.
One market indicator that's 'full-on recessionary' right now is the yield curve, which Gundlach said looks 'a lot like 2007.' The yield on long-term U.S. debt like the 10-year Treasury note is now lower than yields on shorter-term debt, a phenomenon known as an inverted yield curve. 'There's no way to sugar coat it,' Gundlach said. 'When you have a 40 basis point inversion, well, then that usually leads to a problem... Leading economic indicators are heading south in a hurry. The PMIs are weakening up substantially. You're starting to see some warning signs from sentiment surveys, from CEO sentiment a little bit, and there's a flashing signal from consumers' expectations of the future being much worse than thoughts of the present,' he said...." ("Jeffrey Gundlach puts the odds of a U.S. recession before the 2020 election at 75%," Yahoo! Finance, 8/7/19.)