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Goldline Week in Review

Release Date:  Saturday, November 2, 2019
WEEKLY SPECIAL

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 METALS MARKET UPDATE – WHAT YOU NEED TO KNOW
  • Gold prices eased on Friday but remained above $1500 per ounce.
  • The gold market continues to look strong fueled by the continuing trade war and slowdown in the U.S. economy.
  • The Federal Reserve lowered interest rates again and affirmed more cuts may come if the economy continues to weaken.
  • Gold ended the week at $1,515.10/oz. Silver closed at $18.18/oz.

https://www.reuters.com/article/global-precious/precious-gold-eases-as-strong-china-factory-data-prompts-profit-booking-idUSL3N27H0TS

METALS NEWS –

Gold remains the top choice for portfolio diversification as interest rates continue to fall and concerns about a faltering economy increase.

  • John Kaiser of Kaiser Research Online sees gold prices surging to $2,000 to $3,000 due to growing economic uncertainty. "'The reason for gold to reprice into the $2,000 to $3,000 range is linked to this uncertainty, just growing and growing, and what will be the trigger that suddenly makes people say, Humpty Dumpty has fallen off the wall, and nothing will ever put them together again, and then start buying gold because there is no alternative really to the U.S. dollar,' Kaiser told Kitco News on the sidelines of the Xplor Mining Convention."
  • Two analysts are forecasting $2,000 gold reported the financial website moneyweb. Independent gold analyst Peter Grandich has been pretty spot-on with his predictions in the last six years, calling the break above $1500 an ounce over a year ago. Gold is now forming a base around $1 500/oz and is preparing for the third leg of a major bull run that will take it past $2000/oz in the coming few years… We're in the third and final phase of the gold market that started in 2001 and this will be the most explosive phase for gold, according to Giustra, who sees bullion punching through the $2000/oz mark in the next few years." https://www.moneyweb.co.za/mineweb/the-gold-bulls-are-back/
  • The World Bank is forecasting gold to rise to $1600 per ounce in 2020. "Investors can expect the rally in gold to continue as uncertainty dominates the marketplace, according to the latest forecast from the World Bank. In a report published Tuesday, the global financial institution said that it expects gold prices to rally 5.6% in 2020, which would see prices trade around $1,600 an ounce. 'The risks to the precious metals price outlook are on the upside and reflect heightened uncertainty and weak growth prospects of the global economy,' the analysts said."
  • Forbes reported that Chinese investors are moving heavily into gold on economic and political fears. "Chinese investors are piling into gold bullion in a big way as worries over China's economy and political system surge… In simple terms, the Chinese economy is on the rocks, and there is little that can be done to fix the problem. Or at least, what can be done – such as reducing state control – won't be considered by the communist party leaders. As a result of the malaise, investors are seeking sanctuary in gold bullion." https://www.forbes.com/sites/simonconstable/2019/10/28/chinese-investors-pile-into-gold-as-economic-worries-surge/#7c449bac2fb7  
  • The World Gold Council stated that gold is thriving by the interest rate cuts implemented by central banks throughout the world. "It's old news that the world economy is suffering. Ongoing trade tensions between the US China (and elsewhere too1), the draining Brexit saga, as well as a myriad of other geopolitical uncertainties, have taken their toll. Global growth is slowing, and investors are downbeat on world economic prospects. Recession in many major economies is now a real possibility. As a result, central banks around the world have been busy cutting rates. A total of 54 central banks across developed and emerging markets have cut their policy/base interest rates as of October… So, what does this mean for gold? … [I]nterest rates have been lowered and the stock of negative yielding bonds has grown rapidly, lowering the opportunity cost for holding gold… Looking ahead, more central bank interest rate cuts are likely, further supporting investor interest in gold." https://www.gold.org/goldhub/gold-focus/2019/10/gold-thriving-lower-interest-rates
  •  In a separate report, the World Gold Council wrote that gold may be a more attractive investment than bonds. "A lower rate environment may make gold more effective than bonds in mitigating stock-market risk, providing portfolio diversification and helping investors achieve their long-term investment objectives... Gold has historically performed well in the year following a shift in Federal Reserve policy from tightening to "on-hold" or "easing" – the environment in which we currently find ourselves. In addition, when real rates have been negative, gold has historically returned twice as much annually as the long-term average, or 15.3%." https://www.gold.org/goldhub/research/time-to-replace-bonds-with-gold

ECONOMIC NEWS –

The Federal Reserve cut interest rates for a third time this week in its continuing effort to salvage a weakening economy. 

  • Citi predicts the greenback could weaken 'substantially' — to as low as 85 on the dollar index.  The U.S. dollar index could fall to as low as 85 as the Federal Reserve expands its balance sheet, Mohammed Apabhai, head of Asia Pacific trading strategies group at Citi, told CNBC.  The dollar index is a measure of the greenback's value relative to a basket of currencies, largely made up of the U.S.'s most significant trading partners.  A decline in the dollar would be positive for emerging market equities, especially the Hang Seng Index that could see 40% upside, Citi predicted. https://www.cnbc.com/2019/11/01/us-dollar-could-weaken-to-85-on-the-dollar-index-citi.html
  • The Federal Reserve cut interest rates for a third time this week citing concerns about the global economy. The U.S. Federal Reserve, as expected, ordered another interest rate cut. The Federal Open Market Committee announced the policy decision Wednesday afternoon. 'In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent….'" https://www.upi.com/Top_News/US/2019/10/30/Federal-Reserve-orders-another-quarter-point-interest-rate-cut/5611572458932/
  • Cantor Fitzgerald's Global Chief Market Strategist and Head of Cross Asset Strategy believes the Federal Reserve cuts won't save the stock market from a dramatic drop in 2020. "Despite the Federal Reserve's decision Wednesday to cut rates for the third time this year, several prominent market strategists see a big stock market selloff in the near future. Peter Cecchini of Cantor Fitzgerald expects the S&P 500 Index to be at 2,500 by early 2020, a plunge of about 18% by early next year, Business Insider reports. He sees bearish manufacturing and consumer data, making a recession likely by the second half of 2020." https://www.investopedia.com/why-stocks-will-plunge-18-by-year-end-despite-fed-rate-cuts-4774639
  • Massive corporate debt could help tank the U.S. economy warned Oxford Economics. "Companies that loaded up on cheap and abundant debt during the past decade will face their first significant hurdle of the cycle as a $4 trillion mound of maturing bonds come due over the next five years, analysts from Oxford Economics warned on Thursday. U.S. companies already are seeing declining profits and rising leverage, both of which can make it harder for weak companies to keep current on their debt servicing. If economic growth slows further and lenders become less accommodating, any failure to roll over maturing debt could spill over into other parts of the economy including the job market, wrote senior economist Lydia Boussour." https://www.marketwatch.com/story/americas-fragile-corporate-debt-pile-faces-a-massive-4-trillion-refinancing-test-oxford-economics-warns-2019-10-31
  • The U.S. economy slowed in the third quarter falling below 2%. "U.S. economic growth settled in at a lower gear in the third quarter, with consumer spending and housing investment increases offsetting a business investment drop. Gross domestic product—the value of all goods and services produced in the U.S.—rose at an annual rate of 1.9% from July through September—adjusted for inflation and seasonality, the Commerce Department said Wednesday, compared with 2% in the second quarter." https://www.wsj.com/articles/u-s-economy-grew-at-1-9-rate-in-third-quarter-11572438761
  • A major indicator of manufacturing activity in the Midwest fell in October, spooking stock markets worried about recession. "A measure of factory activity in the Midwest weakened further in October. The Chicago Purchasing Management Index sank to 43.2 in October from 47.1 in the prior month. This is the lowest level since December 2015. Economists has expected a reading of 48.3, according to Econoday. Any reading below 50 indicates deteriorating conditions."  https://www.marketwatch.com/story/chicago-pmi-weakens-further-in-october-2019-10-31
  • Jobless rates rose this week beyond what was projected by economists. "The number of Americans filing applications for unemployment benefits rose slightly more than expected last week, but the trend in claims remained consistent with strong labor market conditions. Initial claims for state unemployment benefits increased 5,000 to a seasonally adjusted 218,000 for the week ended Oct. 26, the Labor Department said on Thursday… Economists polled by Reuters had forecast claims would rise to 215,000 in the latest week." https://www.cnbc.com/2019/10/31/us-weekly-jobless-claims-rise-to-218000-vs-215000-estimate.html
  • Hong Kong fell into recession with its negative growth continuing into 2020. "Months of protests in Hong Kong that forced shops to close, paralyzed public transportation and scared off tourists have left the city's economy in worse shape than feared. Hong Kong plunged into recession in the third quarter, according to official data released Thursday… Economists are now predicting that for the whole year, Hong Kong will miss its earlier target of between 0% and 1% growth, and the pain could continue into next year." https://www.cnn.com/2019/10/31/business/hong-kong-economy/index.html