Gold traders are buying the rumor, will they sell the fact?

During this election year there has been a multitude of events which have created a climate of uncertainty. In the short-term market participants are awaiting tomorrow’s data when the U.S. Labor Department releases the jobs report for the month of August. Economists are currently forecasting that the nonfarm payroll numbers will indicate an increase of 875,000 new jobs being created last month. They are also forecasting that the unemployment rate will move from 8.4% down to 8.2%.

For the most part this forecast has been factored into current pricing in the financial markets. If the actual data indicates that the forecasts are accurate, we would expect to see very little response in either the precious metals or U.S. equities. However, if the actual numbers are well off the projections we could see sizable moves in both the risk-on and safe haven asset classes.

There are two key interim-term issues which market participants will focus upon. First is whether or not Secretary of the United States Treasury, Steven Mnuchin will be able to reach an agreement with Nancy Pelosi and the Congress in regards to another extremely needed stimulus package to help revitalize the contracting economy in the United States. There is no doubt that tomorrow’s jobs report will be an important factor in the outcome of the current negotiations.

Possibly the most important Interim-term concern on the minds of market participants is the upcoming presidential election. Traders, investors, and market participants are waiting the results as to who will win the presidential election which will be held next month. Depending on the outcome of the election, it is most assuredly going to affect market sentiment, and market participants may need to adjust, or rebalance their overall portfolio.

Then there is the long-term concern; the contracting global economy, which is a direct result of the pandemic which came to a head in March of this year. This pandemic continues to wreak havoc having a detrimental impact on the physical health and financial health of citizens worldwide.

While I cannot predict the outcome of these key and critical events, I am reminded of that classic adage; by the rumor, sell the fact.

Gold and Silver futures along with spot pricing benefited with a strong upside move as market sentiment is once again focused upon the safe haven asset class, and at least for today it was all about gold and silver rather than dollar strength.

As of 4:30 PM EST the most active December 2020 gold contract gained $16.20 and is currently fixed at $1,911.70. Physical gold gained $20.27 and is currently fixed at $1,905.70 per ounce.

According to the KGX (Kitco gold index) spot gold gained $20.50. U.S. dollar weakness was only a minor component of today’s price change accounting for only $2.30 of the gain. The remaining gain of $18.20 is directly attributable to bullish market sentiment leading to buying in the market.

Our technical studies indicate that there is resistance at $1,920, the former record high that was achieved in the middle of 2011. With major resistance occurring at that key psychological level; $2000 per ounce. In the opinion of this author it is not if, but when, gold prices can effectively trade above that price point and change the major resistance level to a new level of support.

 

By Gary Wagner

David

Presidential debate was more like a mixed martial arts title fight

While there were brief moments in which either former vice President Biden or President Trump actually spoke about the real issues, in almost every case the candidate answering the question was rudely interrupted by his opponent.

In the case of last night’s debate, the interruptions were not equally distributed by both candidates, with President Trump continually speaking over former vice President Bidens attempt to answer the question posed to him by the moderator. Trump was not alone as viewers witnessed one of the most bizarre and unforgettable presidential debates in history. Even the moderator was unable to contain the back-and-forth banter and insults that became the predominant theme of the debates.

You could cut the tension with a knife as there was a constant barrage from both candidates making snide remarks or calling the other candidate an outright liar. To say that there was very little substance would be an understatement. In fact, if the desired outcome was rapid exchange of insults, then both candidates were spot on in achieving that goal.

According to MarketWatch analysts at Height Capital Markets said, “Trump’s job in the debate in Cleveland was to “reduce voters’ confidence” in Biden’s “leadership capabilities and mental capacity,” but the Republican incumbent didn’t succeed on that count amid all of the “crosstalk, personal insults and interruptions.” Early reactions to the debate suggest Trump’s performance was a net negative.”

I believe the most important take away from yesterday’s presidential debate wasn’t the lack of content containing real answers to the serious question posted, but rather the dialog highlighted that the chasm and divide in U.S. citizens is growing even wider, and is becoming more polarized to one side or the other.

The moderator, Chris Wallace was unable to maintain any control. Many criticized him for his inability to handle President Trump’s comments made while former Vice President Biden a question from Chris Wallace. But Trump was not alone in terms of his off-color remarks, at times Biden was just as, if not more brutal in terms of what he said and how he said it.

Concurrently yesterday the secretary of the treasury Stephen Mnuchin announced the Democrats are pushing for a new stimulus bill which would reinstate $600 dollars of benefits to those unemployed as well as provide PPP loans for small businesses.

As reported in MarketWatch, “On Monday, Democrats unveiled a scaled-down version of the HEROES Act, their proposed stimulus package that passed in the House in May. Originally the package had a $3 trillion price tag. The revised version would cost $2.2 trillion. It calls for extending the $600 weekly benefit through Jan. 2021 and a second round of $1,200 direct payments to households, both of which were included in the prior version of the HEROES Act, and were part of the CARES Act passed in March.”

This created the optimism which was largely responsible for today’s strong reversal in U.S. equities. However, the same news should have been a bullish factor taking gold higher, it did not. If passed, the additional $3 trillion fiscal expenditure would certainly take the already historically high national debt in the United States to a level never seen before.

This is why Friday’s U.S. Labor Department’s jobs report is such an important data set which will set the course for fiscal stimulus in the months ahead. As we said yesterday economists had already forecasted a fairly robust number of unemployed or underemployed individuals returning to the workforce to the tune of 850,000. The economists also predicted that the unemployment rate would drop from 8.4% to 8.2%.

For the most part this has been largely factored into current pricing for financial assets. That means that if the actual numbers are well under or over those forecasted, we will see a period of time in which the financial markets will readjust to the new data presented.

 

 

 

By Gary Wagner

Contributing to kitco.com

 

David

All markets, even gold, are about to crash says investor in all cash

Markets will see a major correction soon, most likely before the presidential election, said Clem Chambers of InvestorsHub, who has allocated all his holdings into cash.

“I got a warning from the market about ten days ago…so I cleared the decks because I think it’s highly likely, not absolutely certain, but too likely to be in the markets that we’re going to be in for a crash,” Chambers told Kitco News. “Normally before a crash, I experience what I call a market malfunction where my portfolio just doesn’t behave as it should.”

Chambers added that he has a 65% to 70% certainty of a market selloff of over 25% happening in the coming weeks, and under such conditions, it’s best not to be long on particular equities.

“It’s like a piano falling out of a window, you just don’t want to be under it,” he said.

Under such a “flash crash” scenario, most assets have a positive cross-correlation and tend to fall together.

“When it happens, there will be so many margin calls that pretty much all assets are going to get smacked, just as they did in the crash earlier in the year. Gold got smacked, crypto go smacked, it all got smacked because when the market crashes, it’s the people that get margin calls that get causes the knock-on vicious circle,” he said.

Under normal market scenarios where a major market sell-off is not expected, Chambers would recommend an equal allocation of 33% cash, 33% stocks and 33% gold and cryptocurrencies.

On the economy, the full effects of the pandemic have not yet been felt, and the increased money supply from quantitative easing is going to drive up prices and create inflation

“We’ve got a massive deficit situation where governments can’t afford their budgets, and that’s an absolutely textbook example of what creates hyperinflation, let alone inflation, it’s when governments can’t cover their budgets, they just print money. We’re seeing the beginnings of that, not the end,” Chambers said.

 

By David Lin

For Kitco News

 

David

Stocks, gold price bounce back; buy or sell now? Gary Wagner answers

Gold rallied more than 1% on Monday, bouncing back from last week's declines. Equities markets are also seeing gains.

Gary Wagner, editor of TheGoldForecast.com, said that he prefers to buy into strength.

"Gold is up $18 [an ounce]. The most important takeaway for me is not so much the current high, but the intraday low that it hit in trading earlier this morning when it touched down the 100-day moving average," Wagner said.

The consolidating at the 100-day moving average initiated short-covering orders for gold and a "buying the dip mentality", Wagner said.

"For me, what we are seeing today in gold is a relief in the congestion and selloff we saw last week," he said.

Wagner does not recommend selling on this rally.

“Personally, I believe in buying the breakouts rather than selling into strength. The key to today’s move in gold is twofold. One, the fact that it hit an intraday low at the 100-day moving average it bounced off, and the second factor is it’s now trading above Friday and Thursday’s high of the day,” he said.

Gold and equities, which traditionally have moved in opposite directions from one another, have been moving in tandem recently. Wagner attributed this to monetary policy intervention.

“The only time you really get a correlation where you get both U.S. equities and gold and silver running in tandem to the upside, is when you have central bank intervention and quantitative easing,” he said. “That is the unusual circumstance where borrowing power is very, very inexpensive, the cost of borrowing is zero, basically.”

Quantitative easing will entice equities traders to push stocks higher, as well as gold investors to buy the metal on the back of inflation fears.

On equities, Wagner prefers the technology sector.

 

By David Lin

For Kitco News

David

Gold price to end the year at $2,000 – Capital Economics

In a report published last week, commodity analysts at Capital Economics said it expects gold prices to end the year higher after raising its year-end target.

Samuel Burman, assistant commodities economist at the U.K.-based research firm, said in the report that they now see gold prices end the year at $2,000 an ounce and they see prices ending 2021 at $2,100 an ounce. The new year-end target is up from the previous estimate of $1,900 an ounce.

The comments come as gold prices saw their worst selloff since collapsing in March due to the global COVID0-19 pandemic. Gold prices dropped below $1,900, falling nearly 5% last week. Burman said that gold is struggling against rising momentum in the U.S. dollar, which hit a 2-month high last week.

However, Burman said that lower real yields will eventually weigh on the greenback and boost gold prices.

“As gold pays no income of its own, its attractiveness as an asset is determined by real yields on competing safe-haven assets, such as US Treasuries. Real yields have plummeted in recent months as a result of the collapse in nominal yields and a revival in inflation expectations,” he said in the report. “We think that the price of gold will drift upwards through to the end of 2021 as real yields edge lower, which could weigh on the value of the US dollar.”

With the Federal Reserve signaling that it expects to hold interest rates at the zero-bound range through 2023, Capital Economics said that it sees nominal 10-year yields ending the year at 50 basis points and remaining there for the foreseeable future.

“This fall, in conjunction with higher inflation expectations as the US economy recovers, will mean that real yields will decline,” said Burman.

Along with rising inflation expectations and lower real yields, Burman said that they see gold prices pushing higher by the end of the year as investors continue to look for safe-haven assets in a world that has been devastated by the coronavirus.

“If COVID-19 is not brought under control soon, ETF demand could rise further, which would provide an additional boost to the price of gold,” he said.

 

By Neils Christensen

For Kitco News

 

David

Gold and silver have worst weeks since March on rising dollar

Gold and silver posted their biggest weekly losses since March, when the global onset of the coronavirus pandemic panicked markets.

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The dollar gained as concern over the outlook for global economic growth bolstered the appeal of the currency as a haven, sapping demand for gold. Fears are mounting that rising coronavirus cases, particularly in Europe, may lead to more national lockdowns, denting the outlook for recovery. Gold fell 4.6% this week, while silver slumped 15%.

“Both have succumbed to belated long liquidation and pressure generated by the strength in the general dollar index, which is on track for its biggest weekly gain in almost six months,” Edward Meir, an analyst at ED&F Man Capital Markets in New York, said in a note.

Bloomberg

The rally in gold, often used as an inflation hedge, has also flagged as the dimming view of the recovery undercuts the outlook for a rise in consumer prices. A lineup of Federal Reserve officials have said the central bank alone can’t boost prices and the economy would falter without more aid. Gold has fallen more steeply of late than currency exchange-rate developments would have led one to expect, said Commerzbank AG’s Carsten Fritsch.

“Abating concerns about inflation due to rising corona numbers could have something to do with this,” Fritsch said in a note.

U.S. House Democrats have started drafting a stimulus proposal of roughly $2.4 trillion that they can take into possible negotiations with the White House and Senate Republicans. The bill could get passed by the House next week.

Gold fell 0.3% to close at $1,861.58 an ounce at 5 p.m. in New York. Silver slipped 1.1%. Platinum also declined in its worst week since March, while palladium had the biggest weekly slide since July.

The Bloomberg Dollar Spot Index climbed 0.3% and registered its best week since April.

Gold’s slump could prove temporary with increased uncertainty over the U.S. presidential election. Any added conflict in the run-up to the vote should help lift the precious metal, according to RBC Capital Markets strategist Christopher Louney.

“The U.S. election cycle and any potential transition as well as heightened geopolitical tensions remain amid economic uncertainty,” he said in a note. “The recent moves open up room for gold to move higher more materially” in the next two quarters, he said.

 

By Eddie Spence

David

Gold price outlook from third largest miner in the world, Polyus

Despite the recent slowdown in gold jewelry demand and tapering of central bank buying, the price of gold is not expected to see major changes and substantial volatility in the medium term, said Pavel Grachev, CEO of Polyus, the third largest gold miner in the world, based in Russia.

“We still believe the factors that generated the gold rally so far continue to persist and we do not expect major variations in the gold price going forward, at least not for the next 12 months,” Grachev told Kitco News.

While the price of gold has rallied significantly this year, not many changes are to be made in the company’s operational strategy as a result of this price increase, Grachev said.

“In short, the growth in the gold price does not really contribute to our production plans,” he said.

Polyus has operations in Siberia and the Far East. Its share price has risen by 129% year to date.

“In terms of exploration and new projects, we mainly focus on organic growth. We recently developed a number of brownfield initiatives which allowed us to increase our production from 1.6 million ounces in 2014 to [2.8 million ounces] last year,” Grachev said.

Grachev said that the company has one of the lowest cost profiles amongst the major gold producers, at $400 an ounce.

“Our plan is to maintain this level going forward on the back of growing production and the continuous control of costs,” he said.

While oil prices have fallen this year, the lower energy costs have not substantially changed the cost profile of Polyus, owing to alternative sources of energy that the company has relied on.

 

By David Lin

For Kitco News

David

Watch out for these 3 gold price risks as most volatile quarter approaches

The gold price is encountering extreme turbulence as fall kicks into full gear. Here are the top three biggest risks the gold market is facing during this most volatile season, according to analysts.
 

1. Another massive equity selloff… rush to cash

One of the biggest drivers for gold will be the equity market. Gold is likely to trade higher when stocks are up and fall lower when equities sell off.

The equity markets are a good gauge of uncertainty levels, especially when it comes to the U.S. economic recovery, the U.S. election, the possibility of more fiscal stimulus, geopolitical tensions and much more.

"If the market moves significantly lower and enters into panic mode, volatility jumps and you might see folks having to cover margin calls and sell their gold because they need liquidity," TD Securities head of global strategy Bart Melek told Kitco News.

A rush to cash is the likely outcome, which is why gold is also at risk in this sell-what-you-can scenario.

"If the economy takes another hit, I suspect cash will be a focus for investors. In this scenario, it is likely the metals will also be under pressure because of the inherent gains in this market, especially gold," said Kitco Metals global trading director Peter Hug. "A movement to cash liquidity is the biggest risk to the metals and without further government support from a liquidity perspective, a weakening equity market remains the top risk."

At the end of the day, investors fall back on the U.S. dollar, Melek pointed out, especially when it comes to settling redemptions and margin calls.

"That could mean a spike in the U.S. dollar. You can see a situation where that higher volatility is driving investors out of everything and that includes gold. We've already seen that happen. Right when the COVID crisis started, we had a massive liquidity crisis and the Fed had to step in and fix things essentially. Gold also moved down from $1,706 to $1,450," he added.

And even though the long-term macro picture remains very supportive of higher gold prices, short-term volatility in the stock market takes priority.

"Despite the fact that you have positive macro conditions along with the Federal Reserve willing to continue to support markets with low interest rates as well as adding more QE over time, what we see is that volatility take precedent short-term in light of the uncertainty about the future political configuration of the U.S.," Melek explained.

However, even though a sharp drop in gold is almost inevitable in light of a stock market meltdown, a resumption of the gold rally following this drop is also looking very likely, Bloomberg Intelligence senior commodity strategist Mike McGlone told Kitco News.

"A sharp decline in the stock market like in March may have an initial knee-jerk pressure response in gold, but increasing stock market volatility and a potential bear-market in equity prices will solidify the foundation for advancing gold," McGlone said. "I sense we are nearing an inflection point where gold will resume outperforming the U.S. stock market, notably the Nasdaq."

 

2. Lack of fiscal stimulus … U.S. dollar reaction

The U.S. dollar has also been putting downward pressure on gold as additional fiscal stimulus from the U.S. government is looking unlikely before the November election.

"From a risk perspective, it's the economy. If the equity markets continue to selloff, it will be critical for the government to add more stimulus," Hug said. "With the election, it is becoming more doubtful that the government will take action on the economy."

The death of Supreme Court Justice Ruth Bader Ginsburg on Friday has created a new round of complexity when it comes to the U.S. fiscal stimulus, said Capital Economics senior markets economist Oliver Jones.

"The recent death of a Supreme Court Justice in the U.S. makes it more likely that politicians there will squabble over the vacancy than come together to agree more fiscal support before the election," he noted.

Rising coronavirus cases in the U.S. and Europe also play into this as the world's economic recovery could see a rapid reversal if more shutdowns are introduced to deal with the second wave of the outbreak.

"There now appears to be an even greater risk than we had previously feared that daily coronavirus cases continue to rise sharply in the U.S. and Europe in the near term and that we will see the further re-imposition of restrictions, such as we have seen them in the UK today," Jones added.

 

3. U.S. election … uncertainty surrounding the outcome

The U.S. election is also a big part of the equation here with certain political headlines increasing volatility surrounding this major political event.

“Regarding the upcoming election, indices such as the VIX indicate a huge amount of fear, anxiety, and turmoil has now been priced into the market regarding the potential outcome of a contested election,” Goehring & Rozencwajg Associates managing partner Leigh Goehring told Kitco News.

The period between when exit polls are released until the outcome "could be wild," said Pepperstone head of research Chris Weston.

"A key consideration is the timing of the result. In 2016 Trump was declared the winner at 02:29 am local time the day after polling closed. In 2012, Obama knew he would get a second term at 23:38 local, so markets didn't have to wait long to react and price certainty," Weston said.

Melek also pointed out any aggressive comments or a contested election could create significant ripples in the marketplace.

"It is entirely feasibly that we will not know who the winner is right away. On November 3rd, we'll get physical returns. But two weeks later, mail ballots come in and that swings the votes. And then Trump could say this is illegitimate and we could end up with a bit of a constitutional crisis. It is uncertain how things will go," he said.

A contested election is a real possibility this time around, added Weston, citing an increased amount of postal voting in light of the COVID-10 pandemic.

"It may be a matter of days, if not longer until the true result is known, and this is especially true given some of the swing states, with high Electoral College seats, have significantly high postal voting intension," he described. "Also consider that numerous research studies have shown that a greater proportion of those who intend to place postal votes will likely vote Democrat, so there is a risk markets could be thrown around by the who is likely to end up winning."

On the other hand, if Donald Trump or Joe Biden win a decisive victory and the election concludes with only minimal disruptions, gold could face a downward pressure, said Goehring. “The markets are expecting election trouble, and if this doesn’t happen, we could see a sell-off in ‘risk-off’ assets such as gold,” he noted.

Q4 outlooks

The overall consensus for the gold price seems to be from sideways to higher after the markets get past this extreme volatility.

"I expect the gold price will work off its overbought condition and resume the stair-step rally its been in since the 2015 low around $1,000 an ounce. Last year, the key resistance hurdle was $1,400 and this year, it appears to be about $2,000. Gold is a bull market in my view, that's just resuming following a sharp pull-back and extended period of underperformance, on the back of an improving fundamental backdrop including — increasing QE, debt-to-GDP ratios, stock market volatility and declining rates and yields (on a global scale)," McGlone explained.

Sideways to higher price action is what Wyckoff has priced in for the coming weeks and months. "There are always geopolitical developments that pop up unexpectedly, and I suspect in the coming weeks or months a new hotspot will develop somewhere around the world to support the safe-haven metals," he notedMelek sees gold ending the year around the $1,925 an ounce level.

Capital Economics is pricing in a tad higher prices by the end of this year, citing declining real bond yields worldwide. "Many central banks, including the U.S. Federal Reserve, have stated that they will keep monetary policy ultra-loose for some time even if inflation temporarily overshoots their mandated targets," Capital Economics assistant commodities economist Samuel Burman said.

 

By Anna Golubova

For Kitco News

 

David