Dollar off 3-week low, yuan eases after PBOC move

TOKYO, Oct 12 (Reuters) – The dollar inched up in early Monday trade as riskier currencies slipped after negotiation on a U.S. stimulus package ran into resistance and as the yuan dropped after China's central bank took a measure seen as aimed at curbing its strength. The euro slipped 0.1% to $1.1817 while the Australian dollar shed 0.3% to $0.7222 . The yen was little changed at 105.52 to the dollar . The U.S. dollar index edged up to 93.108 , bouncing back from Friday's near-three-week low of 92.997. The index saw its biggest loss in six weeks on Friday on hopes that a deal for new U.S. stimulus would be reached. President Donald Trump on Friday offered a $1.8 trillion coronavirus relief package in talks with House Speaker Nancy Pelosi – moving closer to Pelosi's $2.2 trillion proposal. But Trump's offer drew criticism from several Senate Republicans, many of whom are uneasy about the nation's growing debt and concerned a deal would cost Republicans support in the upcoming presidential election, denting the risk-on mood. Still, with Nov. 3 election only weeks away, investors bet that Democrat Joe Biden is more likely to win the U.S. presidency and offer a larger economic package. "Over the past few days, the markets seem to assume Biden will win the election. Trump seems desperate to get a deal but his comments are getting treated like a noise," said Yusuke Okada, manager of forex at Mitsubishi Trust Bank.

"But I do think we could see a return of political uncertainties by the election. Markets seem to have priced in only the good news," he added.

FORWARD THINKING

The offshore Chinese yuan dropped after the People's Bank of China (PBOC) said it will lower the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading. Analysts said the measure could keep the yuan's strength in check by encouraging the use of forwards. "The authorities have not stood in the way of yuan strength, but this move could be seen as a sign that they want to slow the pace of appreciation," wrote Khoon Goh, head of Asia Research at ANZ in Singapore. "Our interpretation is that removing the reserve requirement is intended to encourage firms to hedge in order to manage currency risk. It also enhances the foreign exchange market structure by making it easier for foreign investors to hedge their onshore portfolio investments." The yuan hit a 17-month high on Friday, both in onshore and offshore trade, having gained more than 6% against the dollar since late May driven by a favourable yield differential between China and other major economies. "The yuan has been supported by the relative strength of the Chinese economy as China has managed the coronavirus much better than some other countries," said Masashi Hashimoto, senior economist at Institute for International Monetary Affairs in Tokyo. "But the Chinese authorities now appeared to have grown wary of the yuan's strength," he said. The yuan last traded at 6.7171 per dollar in offshore trade , down 0.4%. Elsewhere, sterling traded at $1.3035 , having reached a one-month high of $1.3050 on Friday on guarded optimism about Brexit negotiations ahead of a European Union summit this week. British Prime Minister Boris Johnson has set a deadline of the Oct. 15 EU summit for a deal with the union.

Trade is a tad slow overall, due to a holiday in U.S. money and bond markets on Monday.

David

This driver could 'propel' gold price back to its new all-time highs – Bloomberg Intelligence

There is one driver that could really re-ignite the gold price rally during this turbulent fourth quarter, according to Bloomberg Intelligence (BI).

All macro and political risks aside, a peak in the dollar is the one factor that can push gold significantly higher, BI senior commodity strategist Mike McGlone said in his Q4 update.

"Gold is likely to remain atop our macro-performance scoreboard in 4Q," McGlone said. "The greenback entering a bear market would propel gold, if history is a guide."

The yellow metal is currently in a bull market with strong established above $1,800 an ounce after a sharp rise to a new record high of $2,075 an ounce this summer.

"As a bull market resumes, the metal has pulled back from getting overextended above $2,000 an ounce and should build a base around $1,800, with increasing debt-to-GDP and quantitative easing the catalysts," McGlone wrote.

Another sign of the current bull market is that gold hasn't wrapped up a quarter since Q1 2019, less than 8% above its 50-week moving average, McGlone pointed out.

Bloomberg Intelligence sees gold eventually climbing back up to its new record highs, especially in light of the increasing debt-to-GDP ratio and massive global quantitative easing.

"History dictates that the gold-price rally should accelerate toward $2,000 if the dollar is peaking," McGlone said.

The debt-to-GDP ratio is an important one to pay attention to when it comes to projecting gold price rallies, according to the Q4 update.

"A prime reason the store-of-value metal should continue rising — U.S. relative indebtedness has leaped to about 140% vs. an average just above 100% since 2012. The fact that debt-to-GDP rose despite one of the longest economic expansions in history to 2020 suggests there's little to reverse the trend. We see gold staying the upward trajectory and potentially getting overextended like it did to the 2011 peak. An underperforming stock market would be a top support for the metal," McGlone explained.

Plus, once the U.S. dollar enters its bear market, gold could really take off. "The U.S. stock market reaching its record ratio vs. GDP in 3Q signals stiffer equity and dollar headwinds, meaning the performance baton may pass to the metals and agriculture," McGlone noted.

On top of that, gold has developed divergent strength in the face of a rising U.S. dollar this year, which points to a solid price footing and even a more significant price acceleration once the dollar drops.

"Our graphic depicts the divergent strength in gold despite a rising dollar. Since the Federal Reserve rate hike in December 2015, gold has gained about 80% vs. 5% in the dollar," McGlone stated. "In more of a nascent resumption-rally mode at the onset of 2020, the benchmark store-of-value metal appears poised to accelerate its edge vs. most assets if the dollar peaks. In 2008, when gold reached the $1,000 handle the first time, the trade-weighted broad dollar had dropped to a 13-year low. Record highs in March elevate greenback mean-reversion risks, favoring dollar-denominated gold."

When it comes to silver, McGlone projects a re-take of $30 an ounce and rules out a return to this year's lows of $12 an ounce.

"Silver's 2020 trading range of about $12-$30 an ounce could mark the low forever, while the high should eventually be breached," he wrote. "It's a matter of time, if history is a guide, before silver revisits $30 resistance, as we see the metal in a similar breakout pattern as 2003-04."

By Anna Golubova

For Kitco News

David

Gold price has bottomed, $4k target for either Trump or Biden victory – Frank Holmes

Gold has traded sideways for the last few weeks, but the price action is forming a bottom, said Frank Holmes, CEO of U.S. Global Investors.

Despite market volatility ahead of the November presidential election, Holmes maintains his $4,000 price target.

“The bottom that you’re seeing in gold is like a perfect Miami beach bottom. Gold will go up and it will go down, the DNA of volatility you can measure over 20 trading days, 60 trading days, 12 months, it was up when we talked about a time for a correction in in the beginning of August three standard deviations over 20 trading days. It’s now down one standard deviation,” Holmes told Kitco News.

Gold has trended down from its August highs and has not broken past above $2,000 an ounce mid-August.

Physical gold demand has historically picked up following the summer, Holmes said.

“It’s love season. It’s the seasonality of two wedding seasons in India, it’s the season of lights of Diwali, then we have Christmas, and it peaks for Chinese New Year,” he said. “It’s an auspicious time for the consumption of gold, and it’s most highly correlated with GDP per capita growth.”

Importantly, China and India’s GDP per capita has significantly increased over the past few decades, from over 5% of the world’s gold to 53%, Holmes noted.

The outcome of the presidential election would not move the gold price either way, Holmes said.

“Some are betting on blue, some betting on red, and I’m betting on gold,” he said.

By David Lin

For Kitco News

David

Gold price tumbles 2% as Trump calls off stimulus talks with Democrats

Gold plunged along with stocks after U.S. President Donald Trump called off stimulus negotiations with the Democrats “until after the election.”

The yellow metal once again fell below its key $1,900 an ounce level that it was trying to breach on a sustainable basis this week. At the time of writing, December Comex gold futures were trading at $1,881.50, down 2.01% on the day.

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump said on Twitter.

After the announcement, stocks took a big hit while the U.S. dollar climbed. The Dow was down more than 220 points, and S&P 500 was down more than 28 points at the time of writing. The U.S. dollar index, on the other hand, climbed from daily lows of around 93.35 to 93.67.

In this scenario, it is not a surprise the gold fell as the precious metal has been trading in tandem with stocks lately, TD Securities head of global strategy Bart Melek told Kitco News on Tuesday.

“Gold for the last little while has been trading like a risk asset, and that has been true today,” Melek said. “The dollar also heard what Trump said, and we saw a large jump in the U.S. dollar, which is a big offset for gold.”

What this market reaction tells investors is that there is an expectation of disinflationary pressures down the road, Melek pointed out.

“If we don’t see the government add to fiscal expenditures, that means you will have folks who will start running out of money. This might get chronic — they will spend less, and Q4 GDP will be nasty,” noted Melek. “That is the opposite of what Powell suggested. We need more, and we are getting less.”

Trump’s announcement comes after Federal Reserve Chair Jerome Powell warned that the economic recovery remains incomplete and could trigger “recessionary dynamics” if the spread of the coronavirus is not controlled and economic growth is not sustained.

Powell made his remarks during a speech to the National Association for Business Economics on Tuesday morning.

Powell also highlighted that there is more risk in “doing too little” than “overdoing” it.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said. “The risks of overdoing it seems, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster.”

In the short-term, no additional stimulus until after the election is not a great story for gold, added Melek. “Real rates going higher here and the dollar strengthening and volatility moving higher as well,” he said.

However, after the election, the environment once again becomes favorable to gold no matter who wins, Melek explained.

“After the election, we will get massive amounts of fiscal stimulus no matter who wins. We will not get much tax increases from the Democrats. And the Republicans are on record that they want to cut taxes. From both sides, we will get massive deficits, central bank accommodation and gold will ultimately do well as we try to get into positive inflation territory,” he said.

By Anna Golubova

For Kitco News

David

Central banks could be stepping up gold purchases after 2020 pause

Cntral banks around the world are likely to re-engage with gold purchases in 2021 after this year's pause, according to several banks and research firms.

The official sector's gold purchases reached record levels in 2018 and 2019, seeing a total of 656 and 667 tons bought respectively.

Gold demand from the official sector is looking to end 2020 at just 375 tons — the lowest level in a decade, said Citigroup in a September report. In 2021, that total could recover to 450 tons, Citi added.

"The broader push to buy gold is clear amid a longer-term de-dollarization trend and a bias toward reserve diversification," according to Citi's head of commodities for North America Aakash Doshi.

Russia, which stopped being a major gold buyer this year, may resume its purchases in the spring of 2021, and China, which has not revealed anything new in nearly a year, could be looking at new purchases as soon as the U.S. election is over, Citi's report added.

HSBC Securities (USA) Inc. projects a recovery to 400 tons in 2021 after a drop to 390 tons this year, Bloomberg reported.

"Although official sector gold demand was quite robust in 2019 and 2018 and is softer this year, it is not necessarily weak by historical standards," HSBC chief precious metals analyst James Steel was quoted as saying. "While the influence of central bank activity should not be discounted, it is taking a backseat to ETFs and other forms of demand this year."

Meanwhile, Standard Chartered sees central banks remaining net buyers this year with 417 tons while projecting a slight decline to 400 tons in 2021.

"Central bank data for August shows some buying. Qatar (1.6t) Turkey (3.6t) and Mongolia (1.3t) added to reserves with Mongolia buying after three months of selling (-11.8t); but in September, Turkey has sold 44t after buying 224t in 2020," said Standard Chartered precious metals analyst Suki Cooper in a September update.

The World Gold Council (WGC) noted that the official sector demand has slowed during the first half of 2020 as fewer central banks added to their gold reserves. The WGC noted that net purchases fell 39% to 233 tons during the first half of 2020 as compared to the same period a year ago.

"Despite the lower level of growth in global official gold reserves in July, year-to-date central banks' net purchases remain comfortably above 200 tonnes," the WGC in the report.

On why central banks have slowed their gold purchases this year, Jeff Christian, managing partner of CPM Group, had this to say:

"When the oil price war started between Saudi Arabia and Russia in April, and the price of oil fell, Russia stopped buying gold, and it hasn't bought any gold since April. China doesn't have the economic constrictions that Russia has, but it has been buying gold for several years and diversifying its portfolio. Gold is a very small portion of their reserves, but they've been buying consistently. They've pulled back and they haven't bought any gold this year," Christian told Kitco News in September.

By Anna Golubova

For Kitco News

David

Analysts see gold on the upswing after holding support at $1,850

The gold market could have turned a corner and is now heading higher as prices look to end the week above $1,900 an ounce and sentiment among retail investors and market analysts is looking bullish, according to the latest results of the Kitco News Weekly Gold Survey.

Although both Main Street investors and Wall Street analysts expect to see gold prices push higher next week, there is still some caution in the marketplace after the worst monthly performance in nearly four years.

Compared to last week, after what was nearly a three-way tie among Wall Street professionals, sentiment has turned bullish. This week 16 analysts participated in the survey. Ten voters, or 63%, called for gold prices to rise; two analysts, or 13%, called for lower prices next week and four analysts, or 25%, said they see prices moving sideways.

After dropping to the 10-month low, sentiment among retail investors has jumped significantly higher. A total of 1,194 votes were cast in online Main Street polls. Among those, 749 voters, or 63%, said they were bullish on gold next week. Another 245, or 21%, said they were bearish, while 198 voters, or 17%, were neutral.

Most analysts see gold prices pushing higher as it appears that the market has carved out a technical bottom, with support at $1,850 holding at the start of the week. Gold prices are looking to the week with a 2% gain. December gold futures last traded at $1,906.50 an ounce. The rally comes after the previous week's rout, which saw the yellow metal drop nearly 5%.

Many analysts also said that the ongoing turmoil ahead of the Nov. 3 U.S. elections would continue to support prices in the near-term. Election volatility reached a new level Friday after President Donald Trump, running for reelection, said that he posted positive for COVID-19.

Trump has said that he will be quarantined for the next 14 days.

"With all this uncertainty and now it looks like we have found a bottom in gold, at least for now," said Afshin Nabavi, head of trading with MKS (Switzerland). He added that he sees prices trading in a range between $1,920 and $1,875 an ounce.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that while gold prices have room to move higher, he is watching the U.S. dollar.

"It's possible that a USD safe-haven rally could hold gold back, but if that happens, gold could still climb relative to other currencies," he said.

Carsten Fritsch, commodity analysts at Commerzbank, said that the U.S. dollar index had shown some resilient strength this past week as it continues to trade above 93 points, which has capped gold's performance. However, he added that it could be only a matter of time before the U.S. dollar breaks lower and propels gold prices higher. He noted that a lot of the uncertainty is coming out of the U.S.

"At some point, the U.S. dollar will have to move lower. An end to U.S. dollar strength would be helpful for gold," he said.

Although the gold prices will remain an essential factor to determine gold's price action, Richard Baker, editor of the Eureka Miner's Report, said that he is bullish on gold because of important market ratios.

"Even in the Friday chaos, gold has advanced solidly in comparative value to copper and the oil," he said. "The lustrous metal is also gaining on the S&P 500. Even though its dollar price is presently down, the value comparisons are very encouraging, especially in a sustained environment of negative benchmark real rates."

Although there is strong short-term bullish sentiment in the marketplace, it is challenging to ignore a robust neutral bias.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is neutral on gold as the market hasn't been able to push higher given all that has happened in the last few days.

"If gold can't rally when there is news that the U.S. president has COVID-19, then the market is just not ready to move up," he said. "I would like to be bullish on gold, but I don't like the price action right now. I don't think you should short the market, but I also don't see many reasons to buy at these levels.

Hansen added that for gold to move higher, it needs a new driver like new stimulus measures from the U.S. government.

By Neils Christensen

For Kitco News

David

Gold and silver follow up & future predictions for 2020 & 2021

RESEARCH HIGHLIGHTS:

Uncertainty and cycle events will likely lead to continued Gold and Silver price appreciation until the cycle events end (likely in 2024 or 2025).

The gold/silver ratio chart shows very clear levels of support and resistance. With the next targets $2,000-$2,250, $3,200 then $5,500+.

Extended basing may continue for the next 2 to 4+ months.

I have received many comments and questions related to our Gold and Precious Metals predictions originating from research posts we have made recently. Today’s research article is Part 1 of a two-part series, which will revisit some of our past forecasts and showcase what my research team and I believe will be the most likely outcome for Gold as we push through the end of 2020 and into early 2021.

A CONFLUENCE OF TECHNICAL AND CYCLE PATTERNS CONVERGE

I will be referencing two of my team’s earlier research articles in this follow-up article. Our June 2020 article entitled All That Glitters When the World Jitters is Probably Gold put forth a bold prediction that the spike in the Gold to Silver ration during COVID-19 would collapse into a Flag formation, then collapse lower, resulting in a strong upside move for both Gold and Silver. In August 2020, our next piece of related research, Detailed 2020/2021 Price Forecasts for Gold & Silver, suggested detailed “100% Measured Moves” would continue to drive Gold and Silver prices higher in block-like advances until a true parabolic upside rally broke away from these 100% Measured Move price events.

The chart below from the August research article highlights how our predictions translated into reality as the spike in the Gold to Silver ratio broke lower after the March 20, 2020 bottom, then executed a series of 100% Measured Moves resulting in a deeper price breakdown in the Gold to Silver ratio chart. It also highlights the future expectations as of August 2020 – where we suggested a more moderate sideways decline in the ratio would likely take place resulting in more moderate measured moves lower.

There are a number of factors related to precious metals and the fragility of the global markets in the current market environment. To this end, we have also recently posted a research article suggesting the major Super Cycles are aligning in a way that suggests we may experience 3 to 5+ years of very odd price cycles. This is something that we have not seen in well over 75 years. We are also in an election year cycle. Please review the following articles for more information on the cycle events that are currently playing out.

April 2, 2020: STOCKS HAVE ENTERED A 25-35 YEAR CRISIS CYCLE RE-EVALUATION EVENT

June 1, 2020: ELECTION YEAR CYCLES – WHAT TO EXPECT?

What does all of this mean for Precious Metals? It means the uncertainty and cycle events will likely lead to continued Gold and Silver price appreciation until the cycle events end (likely in 2024 or 2025). Below, we will share our thinking related to the future price actions in Gold, and how the Gold to Silver ratio will react over the next 6 to 12+ months, to help you better understand the opportunity we believe will continue to persist in Precious Metals for some time to come.

Be sure to sign up for our free market trend analysis and signals now so you don’t miss our next special report!

The recent downside price move in Gold and Silver is suggestive of the COVID-19 price collapse in Precious Metals. As the markets have fallen over the past 2 to 3+ weeks, Gold and Silver fell from support levels and set up a moderately deep price low , similar to what happened when COVID-19 took hold. My research team believes this downside “washout” is the same type of reactive price move as we saw in February/March 2020 when the broad US and global markets collapsed. We see a deep washout low price rotation well below reasonable support levels.

Although it may be difficult to see on the Monthly Gold to Silver ratio chart below, the right side of the chart shows the recent upward spike in the ratio (follow the END of the BLUE LINE). Because of the current rally in both Gold and Silver followed by the recent moderate downside price move in metals, the Gold to Silver ratio has yet to spike above the SUPPORT level on this chart. What happened back in March 2020, after the COVID-19 collapse was that Gold rallied back to near recent high levels while Silver languished near low price levels – that is what caused the spike in the Gold to Silver ratio.

Currently, both Gold and Silver have collapsed nearly equally, resulting in a more moderate spike in the Gold to Silver ratio. We believe the SUPPORT level on this chart will act as a ceiling for the ratio going forward. We believe the two downside RESISTANCE levels will become the next targets for Gold. The $2000 to $2250 level is very clearly the next upside price target. Once this level is reached, then we believe Gold will attempt to move to $3200 or higher. Ultimately, the $5500 level is on our radar as an eventual parabolic price trend takes place (this may be well into 2022 or later).

Our research suggests a new BASE is setting up in the US stock market and in Gold and Silver. This new base may become the future launch pad for a very big price move higher. Our researchers believe this new basing pattern will start to complete near the middle/end of 2021 (possibly extending into early 2022). We are watching the current price action in the US stock market and precious metals to better determine where and when this incredible setup initiates the next big upside price move.

We believe extended basing may continue for the next 2 to 4+ months in the US stock market and precious metals. This does not mean that precious metals will trade sideways – it is very likely that metals may continue to push higher from the current base levels. We believe this new basing pattern will prompt a big upside move eventually, but right now we believe the moves to be more moderate and prompt more of an upside “drift” in metals.

In Part II of this research post, we’ll highlight more of our expectations and attempt to highlight the new FUTURE BASE that is setting up in the US stock market and precious metals.

Have a good week!

David