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Gold prices enjoyed a significant bump on investor concerns about the growing trade war with China. Even after profit taking, the yellow metal closed higher at the end of the week. In the past twelve months, gold prices have increased nearly 20%.
"Gold retreated on Friday, shedding as much as 1%, as investors booked profits following a 2% rise in the previous session after US President Donald Trump promised fresh tariffs on China... The metal is still on course for a weekly gain of about 1.3%...
"ABN Amro analyst Georgette Boele said that as gold had not managed to test the $1452.6 high hit on July 19, a return to the $1,440-$1,450 range would see some investors continue to take profits, making it harder for prices to move higher. However, gold could break above $1,450 if the dollar comes under pressure due to weak US data, she added.
"Trump said he would impose an additional 10% tariff on $300bn worth of Chinese imports from September and would raise it even further if trade negotiations fail to progress.
"Spot gold may retest resistance at $1,449 an ounce, a break above which could lead to a rise into the $1,461-$1,474 range, according to Reuters technical analyst Wang Tao...." ("Gold falls as investors take profits but is on course for a good week," BusinessDay, 8/2/19.)
Gold ended the week at $1,441.00/oz. Silver closed at $16.29/oz.
Bloomberg Intelligence senior commodity strategist Mike McGlone believes that gold is ready for another bull run with its "mission" to test $1700.
"The gold market is set up to continue its bull run after a pause, according to Bloomberg Intelligence (BI).
"Gold's advance appears to have among the strongest foundations," BI senior commodity strategist Mike McGlone said in the latest commodity outlook. "Gold prices should continue to advance. Fed easing is a tailwind." The gold bull run is projected to continue this year as gold's mission is to revisit its resistance at $1,700 an ounce, last seen in 2013, McGlone highlighted.
"'A potential increase in hedge fund positions supports our view that gold's initial mission is revisiting resistance near 2013's peak at $1,700 an ounce,' he said. 'Hedge funds' net-long futures positions are a bit extended, but indicate that gold is in the early days of a bull market. The macroeconomic picture is supportive of higher gold prices...
"Gold prices appear on a similar launchpad as 2001 when the Fed began an easing cycle. The greatest bull market of this millennium so far began about the time of that first rate cut, following an extended gold-price downdraft and rally in the dollar. Fast forward and the first expected rate cut in 11 years comes on the back of the trade-weighted broad dollar near its historic high from 2002 and spot gold about 25% below its 2013 peak," the outlook described.
"The only headwinds strong enough to hold gold back from the $1,700 an ounce level is a higher U.S. dollar and weaker equity volatility, warned McGlone... 'Rallying gold doesn't mean the stock market should decline, but if the S&P 500 can't add some distance above 3,000, or declines, it's more likely to increase the pace of Fed easing, supporting gold prices and adding headwinds to the dollar....'" ("Gold's Mission: Revisit Resistance At $1,700 An Ounce - Bloomberg Intelligence," Kitco, 8/1/19; emphasis added.)
Stéphane Monier, Chief Investment Officer for Swiss bank Lombard Odier, explained that the current economic climate requires investors to include gold in their portfolios.
"Amid weak yields and rising political tensions, precious metal provides volatility hedge, argues Lombard Odier. A challenging combination of low government bond yields, uncertainty around US-China trade relations and a weakening US dollar justifies an allocation to gold in client portfolios, according to Stéphane Monier, CIO at Swiss bank Lombard Odier. Gold's traditional role in a portfolio has been as a hedge against inflation and equity market volatility, and as a diversification tool...
"These factors include expectations of lower interest rates in the US, a weakening US dollar and rising geopolitical risk in the form of US-China trade and tensions with Iran in the Gulf. In addition, uncertainties around the late economic cycle and widespread negative yields have all encouraged investors to look for alternative havens...
"As the effectiveness of government bonds as a hedge decreases with the level of yields - the potential for lower yields is more limited when bonds are trading in negative territory - holding gold in multi-asset portfolios is becoming more necessary, Monier argues. 'The additional financial demand induced by the lack of safe haven assets is likely to limit downside risk, and given the already exceptional length of the cycle, we can expect recession fears will periodically re-emerge,' he said... 'Gold has always been thought of as the ultimate hedge against financial instability and any loss of confidence in financial and monetary institutions,' he added...
""We expect the combination of low government bond yields, uncertainty around US-China trade relations and a weakening US dollar to stay with us in the months to come. This is an environment supportive for both gold prices and gold's effectiveness as a hedge.'" ("How should selectors view gold as macro outlook darkens?" Expert Investor, 7/30/19.)
The Royal Mint reported it saw a 40% increase in sales for June as investors moved to gold for its safe haven status.
"Gold will continue to be viewed as a safe haven asset in present economic environment, says the Royal Mint after it witnesses a 40% rise in interest in the yellow metal in July. With expectation of lower interest rates in the US, a weakening dollar, and geopolitical uncertainty everywhere one looks, investors have been looking to safe haven assets to hedge against volatility...
"'Last month we experienced a 40% rise in interest from new customers looking to invest in precious metals compared to the same period last year," says Nicola Howell, executive director at the Royal Mint... 'Precious metals have a long-standing reputation as "safe haven" assets, whereby they have the ability to provide an additional layer of protection to investment portfolios when stock markets are more volatile...'" ("Gold price rises in July strengthen status as safe haven asset," Private Banker, 8/1/19; emphasis added.)
During an interview regarding the economy, Peter Cardillo, Chief Market Economist for Spartan Capital Securities, stated that investors should increase their positions in gold.
"Gold prices have shot up to six-year high. The 10-year yield in the US has hit the lowest level since 2016 while US equities are facing knee-jerk reactions. Emerging markets including India are seeing a lot of pain. What would you tell investors to do at this juncture?
"I would certainly make sure that there is a certain amount of gold holdings. That would be a very prudent thing to do. I always believe in having some in shares and I would say due to the present situation, it is probably wise to up gold holdings by 5% or 10%. With the local economies continuing to slow and central banks beginning to ease monetary policy, it is a good bet to have a certain amount of cash placed into gold." ("Time to raise gold holding in your portfolio: Peter Cardillo, Spartan Cap," ET Markets, 8/2/19.)
Yahoo! Finance reported that central banks are on a buying spree for gold, increasing total demand to three year highs.
"Central banks continued to load up on gold in the first half, helping push total bullion demand to a three-year high, according to the World Gold Council... The trend is expected to continue, with a recent survey of central banks showing 54% of respondents expect global holdings to climb in the next 12 months.
"Central banks around the world have added to reserves as economic growth slows, trade and geopolitical tensions rise, and authorities seek to diversify away from the dollar. Gold rallied to a six-year high in July, as expectations for lower U.S. interest rates and concerns about the economy boosted bullion's appeal...
Poland bought 100 tons in the second quarter, the most by a central bank since India's purchase in 2009, the WGC said in a report... 'Poland's buying isn't just opportunistic," he said. 'It is supported by the same underlying motivation that many central banks share, which is as a store of value, diversification and, in some instances, to protect themselves from political risk....'" ("Central Bank Hunger for Gold Lifts Demand to Three-Year High" Yahoo! Finance, 8/1/19; emphasis added.)
Scott Minerd, global CIO at Guggeheim, is warning that the Federal Reserve may be forced to cut interest rates to the negative levels in a futile effort to stimulate the economy and ultimately leading us into recession.
"The Fed is about to embark on a rate cutting cycle that could stoke asset bubbles, forcing it to later cut interest rates back to zero or even negative levels in the future, according to Scott Minerd, global CIO at Guggeheim... 'The Federal Reserve at the end of the day is combating recession. The only thing it can possibly do is inflate an asset bubble that ultimately is going to unwind and create a problem that is bigger than the one they face today,' said Minerd in a phone interview with CNBC.
"'Monetary policy is not going to address the ills in the economy which are more supply-side related. Whether we go straight into a recession from here or the Fed manages to reflate the economy...we're going to end up in the same place. Maybe it can buy some time but the mop up period, if we have a period of accommodation, would be worse than if we went into recession right now," he said...
"'I think ultimately we're going to end up back at the zero bound in either scenario,' Minerd added. 'Ultimately we're going to go to negative interest rates. I think that's what the Fed would like to avoid by trying to take a preemptive action, but the structural forces inside the economy, like demographics and the negative interest rates in Japan and Europe, are going to put such downward pressure on rates. Ultimately the Fed will end up doing quantitative easing again.'" ("Guggenheim's Scott Minerd says US interest rates could go back to zero or even negative," CNBC, 8/2/19; emphasis added.)