'A democracy cannot exist as a permanent form of government', so what's next?

world has given way to the rise of populism, mirroring what happened in the 1930s, when after the Great Depression, populist leaders took power and World War 2 followed, said Bob Thompson, portfolio manager of Raymond James. "Sometimes the currency wars, competitive devaluations, etc. turn into real wars," he said. "We're not there yet, I'm not saying that's going to happen, but sometimes that's the case." One of the root problems of the economy is excessive amounts of debt. “You have a long-term credit cycle and that’s a long wave of about 70 years, and credit builds up to the point where excess credit is not helping anymore and that’s kind of where we are. So, at the end of this long-term credit cycle what happens is we get this huge divergence between the wealthy and the poor, exactly what’s going on today,” he said. Towards the end of similar credit cycles where the wealth gap widens and trade wars emerge, populism starts to take center stage in politics, Thompson said. “People like to vote in people who say they have simple solutions to very complex problems and we saw that in the late 1930s,’ he said. Thompson’s comments come as Joe Biden wins the presidency on Saturday, after taking the lead in both Pennsylvania and Nevada. 2020’s election saw the largest voter turnout in U.S. history. Even with a Democratic president in the White House, tensions with China are likely to remain, Thompson said. “I think there’s going to be lots of issues between China and the U.S. going forward because I think both parties have decided that it’s time to get a little tougher on what they perceive to be some issues with China,” he said. “I can see that some geopolitical risks will continue, obviously that helps the gold sector.” One of the reasons governments have maintained an accommodative monetary policy with low interest rates is to create inflation and devalue the debt that they have accumulated, Thompson added. On mining, the sector is currently at “6:30” on the mining clock, which means more mergers and acquisitions are on the way, Thompson said. “What happens is that when M&A comes, it becomes extremely competitive, and companies start to outbid each other,” he said.

By David Lin

For Kitco News

 

Kinesis Money

David

Post-Trump era? Gold price to see $2,000 next week as attention shifts to coronavirus – analysts

The gold market is reaping the benefits of a lower U.S. dollar in an uncertain environment, where markets are betting on a Biden win.

The precious metal began its rally Thursday with prices rising more than $50 amid uncertainty and weaker U.S. dollar as Democratic candidate Joe Biden maintained his lead against U.S. President Donald Trump.

Based on the latest Electoral College count, Biden has 264 votes versus Trump's 214. Ballots from swing states, such as Nevada, Georgia, and Pennsylvania, are still being counted as of Friday afternoon.

At the time of writing, December Comex gold futures were trading at $1,954.80, up 0.41% on the day, seeing their best weekly gains since late-July.

"Gold has been really following the dollar, the COVID-19 crisis, and stimulus talk," Afshin Nabavi, vice president at precious metals trader MKS SA, told Kitco News on Friday. "There was a mixture of safe-haven buying. The dollar has been pretty much in free-fall, which helped the precious on Thursday. Everybody under the sun was interested in the safe-haven."

With all this election uncertainty amid a second coronavirus wave, gold could climb back to the $2,000 an ounce level next week, said Nabavi.

"We are now at around $1,950-55. If we can get above that, I think $2,000 is in the cards," he said. "Economy is in deep trouble around the world because of the pandemic, stimulus packages will keep on printing money, and the precious metal will benefit on the upside."

More litigation news and vote recounts could shake markets next week, Nabavi warned. "I expect a lot of resistance coming from Trump, even if elections are saying the contrary. It could be a bit of a mess, and it will help precious go higher as well."

Gold's $1,980 has been identified as key resistance by TD Securities commodity strategist Daniel Ghali, who sees gold as overbought for the moment.

"The reason behind that is because gold prices outperformed real rates," he told Kitco News on Friday. "The most likely outcome is Biden presidency with Republican Senate, which means less fiscal stimulus and gridlock in the near term."
 

Election expectations

For next week, markets are pricing in a Biden win and a Republican-controlled Senate, which means a split government.

"While not official, Biden is likely to be the next President with 306 electoral votes. Margins are too wide for recounts or litigation to likely reverse that. The Senate seems likely to result in a 52-48 Republican majority, a net gain of just one seat for Democrats. However, the race is likely deadlocked at 50-48 (R/D) pending a Jan 5 runoff in the two seats in GA, which will likely garner huge media, political, and financial attention over the next two months to see if Democrats can win both seats and gain control of the Senate," said TD Securities strategists on Friday.

What this means for policy going forward is less dramatic changes, including a smaller fiscal stimulus. "Divided government should mean fewer significant policy changes, but we expect a small ($500bn) stimulus package to pass in Dec-Jan," TD's strategists added.

The U.S. dollar is likely to continue to lose steam as the year-end approaches, analysts added.

"Markets are confident Biden will win as final votes are counted, and rallying risk assets don't seem too concerned by President Trump's moves to challenge the result," said ING FX strategist Francesco Pesole. "In FX, USD may stay pressured as investors keep betting on a rest of the world rally in the post-Trump era."

In the week ahead, the focus will remain on the U.S. election and Biden's chances of receiving a convincing enough victory. After that, however, the attention will shift to the coronavirus numbers in the U.S., which are seeing a record of more than 100,000 new cases per day, Pesole added.

"Price action over the last week … suggests investors are positioning for a post-Trump era, which, with a Fed keeping rates near zero, is seen as a dollar negative," the strategist added. "The biggest threat … comes through COVID-19. New daily COVID cases in the U.S. are running above 100k per day, which could prompt state governors to close bars and restaurants again – a move that could hit very bullish current sentiment."

Rising coronavirus cases across the world pose "the greatest economic challenge," said CIBC Capital Markets chief economist Avery Shenfeld.

"We've been watching the numbers obsessively. No, not those numbers, as we don't really need to hear from every county clerk in the U.S. When the dust settles on the election, the market will turn its attention again to the coronavirus," he said on Friday.

So far, the macro data out of North America does not show a big impact from the second coronavirus wave. However, Europe might be flashing warning signs, said Shenfeld.

"We can look across the pond to Europe, where even higher caseloads seem very likely to squeeze Q4 GDP, for what could be in store here if we can't contain infection rates," he said. "In projecting economic data during the pandemic, it's important to watch the coronavirus numbers, rather than just the public health edicts. And, unfortunately, in Europe, the U.S. and most of Canada, the case counts have yet to signal an end to the second wave. So while North America's economy looks to have still advanced in October, we're not out of the woods yet."

The looming winter and the surge in coronavirus cases bring up the next point — the need for fiscal stimulus.

Fed Chair Jerome Powell stressed that need on Thursday during a press conference, which followed the monetary policy meeting that kept interest rates unchanged.

Powell reminded that the current economic downturn is the most severe one, and it will take a while to get back to the levels of economic activity seen at the beginning of the year.

"It will require both monetary and fiscal policy to achieve that," he said. "Further support is likely to be needed from fiscal and monetary policies."

Powell also addressed the rising COVID-19 cases, saying that the U.S. is seeing "a widespread spike in cases," noting that "it does seem likely that people who have begun to engage in activities may pull back."

Data to watch

Next week will be a fairly light data week with the critical releases being U.S. inflation data out on Thursday and PPI numbers out on Friday.

Also, markets will continue to watch the U.S. jobless claims, scheduled for release on Thursday.

 

By Anna Golubova

For Kitco News

 

Kinesis Money

David

E.B. Tucker lays out investment 'war' plan as Biden edges closer to White House

With Odds now stacked in Joe Biden's favor, it's now looking more likely that the next four years will see a Democratic president in the White House.

E.B. Tucker, director of Metalla Royalty and "Why Gold? Why Now? The War Against Your Wealth and How to Win It" said that gold and gold royalty stocks still remain the ultimate weapons against the "war against wealth."

Tucker said that bigger government, more government intervention, and low interest rates are all likely to persist during a Biden Administration, creating tailwinds for gold.

Tucker maintains $2,500 an ounce by the end of the year as his gold price target.

 

By David Lin

For Kitco News

 

Kinesis Money

David

Déjà Vu – it's happening again

Okay, so it is not déjà vu. In fact, it’s only slightly reminiscent of the last presidential election held in 2016 in terms of how gold prices changed immediately following the release of the election results. In both cases the immediate reaction and move in gold was the polar opposite of what was expected. In 2016 analysts believed that if Donald Trump got elected gold would reach stratospheric heights due to the uncertainty of the first president to be elected that was not a politician.

The common thread that the last two presidential elections had was a highly exaggerated knee jerk reaction. This caused swift moves taking gold prices higher for the first hour and then lower. Initially when the election results became clear in 2016 and the candidate which was presumed even before the vote to be the first woman president lost the election.

To be fair, the analysts in fact did get it right as immediately after selling off after the election results were made public, gold over the next four years gained roughly 50% in value. Furthermore, the dramatic rise in gold during the Trump administration had a lot to do with the pandemic that hit the United States and the beginning of 2020 causing the Treasury Department to allocate $3 trillion to fund the “cares act “providing the needed fiscal stimulus to help revitalize the U.S. economy.

A Trump victory inherently contained an uncertainty factor. It was believed that this uncertainty would be the underlying cause that would take gold prices sharply higher. And in fact, they did for about an hour immediately following the election taking gold $50 higher for an hour. However, within eight hours gold prices did 180° reversal and closed $50 lower, the exact opposite of the anticipated reaction to a Donald Trump presidency.

The 2020 presidential election had a similar knee-jerk reaction as it became clear that it would not be a landslide victory for the Democratic candidate but rather a close call with Joe Biden winning the election to become the 46th president of the United States.

Like in 2016 it was anticipated that should the election unfold with a democratic winner gold would gain tremendous ground due to the fear of a unprecedented amount of expenditures needed to fund the fiscal stimulus bill. Market sentiment quickly pivoted once it was clear that the Senate would maintain its Republican majority and thereby contain the prospect of another large fiscal aid package that would further swell our record budget deficit for 2020.

Brian Lundin said that, “Speculators had bought gold in recent days on the prospects for a blue wave that would have put both the White House and Congress in the control of the Democrats, and therefore grease the skids for more-massive stimulus spending.”

Seeing as this election is likely to be contested by the Trump team, and that the democrats are the senate minority with the majority held by republicans the rise in gold prices is likely to have the same outcome as in 2016.

 

By Gary Wagner

Contributing to kitco.com
 

Kinesis Money

David

Markets react – what gold, stock prices say about election outcome

As of 11:00 pm EST, the precious metals and equities futures markets are favoring a Trump re-election, this according to Peter Hug, global trading director of Kitco Metals.

Gold fell 1.19% as of 9:30 pm EST, but rebounded when President Trump narrowed the lead from Vice President Joe Biden. As of 11:30 pm EST, gold is down 0.6%, the S&P 500 futures are up 1.3%, NASDAQ futures up 3%, Dow futures are up 0.65%.

Biden is reported to have 192 electoral votes, with Trump at 111.

“What it’s telling me is that the market, both the equity market and the metals markets, from a bullish perspective would prefer Donald Trump as the president and to continue for the next four years, and they are more worried on a Biden presidency, which has created some fear and some selling into the market whenever there is a suggestion that he has a reasonable shot of becoming the next president,” Hug said.

 

By David Lin

For Kitco News
 

Kinesis Money

David

Cameco calls tax decision 'incredibly disheartening and unfair'

Cameco (NYSE:CCJ) received notice last week that Canada Revenue Agency has sought leave from the Supreme Court of Canada to appeal the June 26, 2020 decision of the Federal Court of Appeal, which found in favour of Cameco in its dispute of reassessments issued by CRA for the 2003, 2005 and 2006 tax years.

 

After two clear and decisive rulings in our favour from the Tax Court of Canada and the Federal Court of Appeal that confirmed we complied with both the letter and intent of the law, it is incredibly disheartening and unfair for our employees, communities and many other stakeholders to be once again thrown into uncertainty as a result of CRA’s actions,” said Cameco president and CEO Tim Gitzel in a news release.

“Cameco’s position has prevailed at every stage of the legal process,” Gitzel said. “If CRA feels the laws aren’t accomplishing what they want, then the government should change the laws moving forward and not pursue the same arguments over and over again before a different court and expect a different outcome."

Saskatchewan's Cameco is one of the largest global providers of the uranium fuel.

 

By Jim Wyckoff

For Kitco News

 

Kinesis Money

David

Markets getting starved for capital by 'casino-like funds'

The mining industry is facing competition from passively-managed index funds which pull capital away from individual mining companies, said Jeff Christian, managing partner of CPM Group.

“There’s a shift in the buy-side of the finance market away from investing in smaller companies and individual companies, and that has been reducing the amount of money readily available for mining investments,” Christian said.

Christian noted that some of these passive index funds are beating actively-managed investment funds that pick individual mining companies.

The ease with which miners were able to raise capital this year was due primarily to the cyclicality of the business, he said.

“One of the things we saw in past cycles is that a rising tide raises all boats,” he said, and during a bull phase of the cycle, “investors tend to throw reason to the wind and they will invest in anything that has gold or mining in its name, and you see a lot of companies that have been very good but starved for capital all of a sudden get capital, and you see a lot of companies that should not be financed, all of a sudden get all the capital they need.”

When money flows into passive funds and exchange-traded funds, companies lose out on capital formation, Christian said.

“When you invest in an indexed fund of companies, that’s not capital formation, that money is not going to those companies to develop their companies, it’s going to the stock market into a pool of casino-like funds,” he said.

This trend is not exclusive to just the mining industry, Christian added.
 

“It’s not limited to the mining industry. The mining industry has its own issues that cause problems, but it’s across equity markets,” he said.

One of the reasons the stock market has risen is because of continuous share buy-backs from companies, Christian said, noting that it has “not been a healthy increase in the stock market.”

“A bit part of the increase of the stock market has been decapitalization. Last year, companies spent more money buying their own shares on the New York Stock Exchange than investors spent buying those shares. That’s decapitalization, that’s companies saying I’m making profits, and rather than investing in hiring people or building new factories or buying new equipment, I’m going to buy my shares back, which pushes the share price up, by skewing the supply-demand balance,” he said.

While the stock markets look healthy, the economy and companies within it are being “starved for capital.”

Private equity is a “big solution” to this problem, Christian said.

“The gold mining industry has overlooked the fact that it can get all the capital it needs, at least the smaller and medium-sized gold companies, from smaller investors who are still fundamentally and macroeconomically drive, and they don’t need to try to chase those big funds,” he said.
 

By David Lin

For Kitco News
 

Kinesis Money

David

The election is just days away, is gold the biggest winner?

What was the real reason why gold tanked this week and what are the expectations come election day Tuesday?

This week, gold dropped well below its key $1,900 an ounce level after being stuck there for weeks. Analysts pointed to higher U.S. dollar, lower equities and options expiration as the main reasons for the drop.

But behind all of that noise were election jitters and more coronavirus fears as some European countries re-introduced lockdown measures.

One major factor to keep in mind is that trading volumes remain very low as most investors are staying on the sidelines until the U.S. election plays itself out. What this means for gold is that low volume mixed in with aggressive flows lead to extreme volatility.

With the U.S. election just days away, here is the breakdown of the the best-case / worst-case scenarios for the precious metal, according to analysts.

A blue wave across the board is likely to trigger the biggest gold rally on hopes of a massive new stimulus that the Democrats have been promising.

The worst-case scenario is looking like a contested election, with results unknown for weeks, and possible civil unrest. This could trigger a short-term selloff as investors rush to cash. But in the long-run, this will benefit gold just like it did back in March.

The most uneventful scenario for gold will be a split Congress, which would lead to a slow grind higher in prices.

Once we get past all this election noise, the outlook for gold remains very positive for 2021, with the precious metal projected to be one of the biggest asset winners. Some forecasts vary from $2,100 to $2,500 by early 2021.

 

By Anna Golubova

For Kitco News

Kinesis Money

David