Hurdles remain for a fiscal stimulus bill to pass

Featuring views and opinions written by market professionals, not staff journalists.

Commentaries & ViewsShare this article:

Although the House, Senate and White House are working feverishly to come to an agreement and pass fiscal stimulus bill before the election, it seems that the differences are split three ways.

Yesterday House Speaker Nancy Pelosi and the U.S. Treasury Secretary Stephen Mnuchin spent 53 minutes on a telephone conversation attempting to narrow the differences and agree on a compromise. Speaker Pelosi said that she “hopes that by the end of Tuesday there will be clarity on whether a coronavirus stimulus bill can be passed before the November 3 elections.”

However today in an interview with CNBC news Mark Meadows, White House Chief of Staff said that, “We are still billions of dollars away from a fiscal stimulus bill that can be passed before the election.”

The difference between the White House, Senate and Congress is the dollar amount that will be allocated for a stimulus bill and where that money will go to. The White House proposed a stimulus bill of $1.8 trillion to help Americans and small businesses who have been greatly affected by the pandemic. While the House of Representatives have proposed a bill that will require $2.2 trillion. The third proposal is by the U.S. Senate which is been labeled the “skinny bill” will require $500 billion and fund additional stimulus checks to American taxpayers and more funding for the paycheck protection program.

Senate Democratic leader Chuck Schumer said that the Republican plan abandons state and local governments in need and has inadequate funding for unemployment benefits.

One key difference between the House of Representatives and the Senate is whether or not there should be federal funding to states which are in great need of a capital infusion. However, the Republicans view this as a “blue state bailout”.

Yesterday Nancy Pelosi said there is only a 48-hour window left to pass a fiscal stimulus bill which means that there is now only 24 hours left.

Many analysts including myself believe that a new round of fiscal stimulus will be extremely bullish for the price of gold and concurrently bearish for the U.S. dollar as the budget deficit in the United States for fiscal year 2021 begins to balloon.

As of 4:24 PM EST gold futures basis the most active December 2020 Comex contract is trading down by $2.30 and currently fixed at $1909.40.

The current price of spot gold is $1905.80 with a net gain of $2.60 on the day according to the KGX (Kitco Gold Index). On closer inspection we can see that dollar weakness today accounted for a net gain of $6.85. Market participants however bid the precious metal lower by $4.25.

 

Wishing you as always, good trading,

 

By Gary Wagner

David

Sterling neutral as traders hope for Brexit trade deal

LONDON, Oct 20 (Reuters) – Sterling traders kept the currency afloat on Tuesday as they searched for clues on how likely it was for Britain to reach a trade deal with the European Union by the end of the year. Price actions suggest investors lean towards a scenario where both parties eventually will agree on some sort of a deal, as they did last year over the divorce agreement.

Sterling was last trading flat both against the U.S. dollar at $1.2944 and against the euro at 90.98 pence .

So far this month, Brexit-induced volatility has left minimal mark on the price of the pound, which on a month-to-date basis, remains little changed. However, traders were bracing for volatility as they bought more protection in the options market. Options costs highlighted that implied volatility rose to nearly 12%, a more than two-month high. On Monday, Britain said it saw no basis to resume trade talks with the EU unless there is a fundamental change in approach from Brussels. Talks halted last week as Prime Minister Boris Johnson said there was no point in continuing them, cancelling an in-person meeting. Discussions still were held over the phone, but negotiations have not resumed yet officially. "Trade talks between the EU and UK remain at an impasse with time quickly running out to reach a deal before the end of this year," said Lee Hardman, currency analyst at MUFG. But "the developments are unlikely to materially alter market expectations that a trade deal remains the most likely scenario despite recent turbulence which is helping to dampen pound weakness," Hardman said.

 

David

Gold price meltdown? 'I'm not selling in front of the crash' says Lobo Tiggre

Fears of a vaccine pushing the gold price down are overplayed, said Lobo Tiggre of the Independent Speculator.

“ think this is another one of these overblown things. Yes, we have seen gold move on vaccine headlines, I don’t deny that, but it’s a mistake to think that 2020 gold is all about the vaccine,” Tiggre told Kitco News.

The most important fundamental drivers of gold are still tied to monetary and fiscal policies, Tiggre said.

“We have been on a volatile upward trend since late 2015, well before COVID. But even the more recent and dramatic upturn started after the Powell pivot. This is really about monetary and fiscal policy, starting, first and foremost with monetary policy. It’s about negative real rates,” he said.

Even if a vaccine were to be introduced, it would still take time for the economy to normalize, Tiggre noted, and the fundamentals behind the gold price would not change.

“Knee-jerk reactions” could still happen on the introduction of a vaccine, Tiggre said, and he would view those as buying opportunities.

“If you’re concerned about a bigger market crash, you may not want to buy every dip now. If you’re convinced that there’s going to be a big market crash and that’s going to hit even gold and silver, then you do not want to be buying the dips now. But if you’re not sure of that, if you think it’s unlikely, then things like this, where people knee-jerk drop gold and it has a big impact on gold stocks on some really not terribly relevant vaccine news, then that is a buying opportunity,” he said.

Tiggre does see another market-wide crash that impacts both equities and precious metals as a possibility, but rather than sell off before this happens, he prefers to stay in positions that he likes and average down should the opportunity arise.

“The number one thing that I want to communicate is that I personally am not selling anything in front of the crash. I’m not in mainstream equities, I’m mostly in gold and silver stocks that I think are going to do well regardless, that I would be happy to buy more of if we have a crash,” he said.

He adds that there is a possibility that markets would just continue going up.

“All that easy money that we know is coming is so bullish that it’s possible that we may not get this crash, it’s possible that that would just push things higher, and I would hate to sell now out of a fear of a crash that doesn’t happen and watch all these stocks that I really believe in take off without me,” he said.

 

By David Lin

For Kitco News

David

Election countdown –  Sell U.S. dollar, buy silver, and other advice from analysts

Gold prices have been stuck around the $1,900 an ounce for most of October due to the strength in the U.S. dollar, but analysts expect the gold price action to pick up in the next few weeks, producing a "lasting price upswing."

dman Sachs also said this week that it doesn't expect the U.S. dollar strength to last as it advised its clients to sell the U.S. dollar and buy silver into the election.

The IMF made the headlines this week as well. And aside from slightly raising its global economic outlook for this year, the organization also saw pressure to sell some of its gold reserves to provide debt relief. The Jubilee Debt Campaign said that gold sales could provide much-needed help to underdeveloped countries struggling with the coronavirus pandemic.

However, the IMF made it pretty clear that it is not interested in selling any of its gold, saying that "gold reserves provide fundamental strength to the IMF's balance sheet."

Going forward, analysts will be focusing more and more on election headlines. And with markets already in countdown mode, T.D. Securities issued a report stating that gold is "agnostic" to whichever candidate wins the election. However, a 'blue wave' at the polls is estimated to trigger the biggest gold rally.

Making this year even more bizarre was the news that Costco in the U.K. have entered the gold bullion market. This move really puts this year's massive gold rally into perspective, with even large wholesale retailers like Costco trying to capitalize on the gold trend.

 

By Anna Golubova

For Kitco News

David

Markets addicted to stimulus' as anxiety builds – What to expect from gold price with election two weeks away

Gold's stable position at the $1,900 an ounce level could be the calm before the storm as the U.S. presidential election is just two weeks away, and a lot of investors are choosing to stay on the sidelines amid high levels of anxiety in the marketplace.

"Uncertainty remains the watchword in the markets," said StoneX head of market analysis for EMEA and Asia regions Rhona O'Connell. "The fact that the gold price has not really moved and is still doggedly trading a range in dollar terms reflects the reluctance of market participants to take aggressive positions ahead of the election result (in our view, at least, the election result will be bullish for gold, regardless)."

The primary triggers for gold remain the U.S. stimulus negotiations and the U.S. dollar's reaction to those off/on again headlines.

"Gold and equities are addicted to the stimulus package. And looking at the negotiations, any sort of rhetoric has a direct correlation between equities and gold. That's why gold's in a holding pattern," Phoenix Futures and Options LLC president Kevin Grady told Kitco News on Friday.

For now, gold is likely to remain in a range between $1,880 and $1,930 an ounce, said MKS SA precious metals trader senior vice president Afshin Nabavi. "Gold is following the dollar and the stock market. We have to break $1,925 on the upside, and on the downside, solid support is at $1,880. The sentiment is more on the bullish side for the metal," Nabavi said.

 

Stimulus talks

The U.S. fiscal stimulus package is looking improbable before the Nov. 3 general election at this point, according to analysts.

In the latest update, Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi that President Donald Trump would personally ask the Senate Republicans for support on any deal that is reached. However, Senate Majority Leader Mitch McConnell rejected the idea, stating he would not be able to sell a larger package to his members.

"With the President lagging in the polls nationally and in several swing states, Trump no longer has the clout to swing the Senate around," said Bannockburn Global Forex managing director Marc Chandler.

Gold's price action is directly tied to stimulus because the metal is inflation driven, Grady explained. The more money the government prints, the more the U.S. dollar depreciates, he added. "As they devalue currency that is pushing gold up. Even bitcoin will start to increase as an alternative investment. The U.S. dollar is the world's reserve currency, and when you devalue it, it gives gold a boost," Grady stated.

Before or after the election, the stimulus will eventually be passed as both presidential candidates see the need for more spending.

"Regardless of which presidential candidate gets in, gold will ultimately be going higher. Both candidates will be spending money, and that is bullish for gold," said Grady. "I expect gold to advance back to $2,000 by the year-end."

Biden is likely to spend more, while Trump's spending is likely to be more directional. Still, both candidates will be good for gold, RJO Futures senior commodities broker Daniel Pavilonis pointed out.

"Gold will continue to grind higher going into the elections and maybe even make new highs off of that. There is an edge for more stimulus if Biden gets in as more money will be pumped out without restraint. With Trump, it is more going to be a directional flow of money. But you still have the Federal Reserve continuing to print up paper and buy Treasuries. Everything is extremely accommodating," Pavilonis said. "Ultimately, we make new highs by year-end. $2,300 was my target at the beginning of the year. There is a possibility that we may still get up there."

Surge in COVID-19 cases

Another element keeping investors cautious is the renewed surge in COVID-19 cases around the globe as fears of new lockdowns weigh on sentiment.

"Global investors are also attentive to the latest developments surrounding the spread of the virus, as COVID-19 makes a resurgence across Europe and the United States. In this pre-vaccine era, a country's economic recovery is contingent on how well it can contain the coronavirus, as it is the health response of each country that forms the basis for its economic recovery," said FXTM market analyst Han Tan.

Economic recovery could be slowed or even derailed if the coronavirus is not contained, which benefits safe-haven assets such as gold, Tan added.

The latest economic data out of the U.S. have so far been mixed. While his week's jobless claims numbers rose to their highest levels since August, climbing towards the 900,000 mark, the U.S. retail sales more than doubled expectations, coming in at 1.9% in September.

There is a dilemma the governments around the world are facing — opening up the economies too soon could lead to more severe lockdowns; not opening up the economies enough could mean pausing the recovery, said Grady.

"People are still spending money, and they do want to get out. But as people get out there, there is no vaccine, and people are subjected to this virus," he said. "Eventually, the virus will end up going away, but a lot of people will be totally desolated from this."

Election just over two weeks away

There is a reason why there is a lot of anxiety in the marketplace ahead of the election, with the biggest risk still being a possibility of a contested election and even a chance of civil unrest.

"The election outcome is far from assured and political risks could still hurt stock bulls if they simply charge recklessly higher," noted Tan.

Should equity markets dramatically sell-off before or after the election, gold will also get hurt as investors raise liquidity, warned O'Connell. The move, however, will likely be a temporary one. "Certainly as evidenced in the February/March falls of this year, [gold's] decline will be a lot smaller than that in the stocks, and will be much more rapidly redressed," she said.

The U.S. remains highly polarized during this election. On top of that, there are COVID-19 restrictions and confusions over mail-in ballots. Plus, there is a looming question of whether Trump will accept and recognize the results if Biden wins.

"Uncertainty around the election is a problem. If you don't trust the electoral system, that is a problem," Grady pointed out.

Data to watch

On the radar, next week are the latest U.S. housing figures. The U.S. building permits and housing starts will be released on Tuesday, followed by the existing home sales on Thursday. Jobless claims will also be out on Thursday, followed by manufacturing PMI data on Friday.

Another interesting item will be Federal Reserve Chair Jerome Powell speaking at a panel on the future of cross-border payments and digital currencies at the International Monetary Fund's (IMF) annual meeting on Monday.

 

By Anna Golubova

For Kitco News

 

David

Fed insider on Jerome Powell’s next moves, gold price expectations – Danielle DiMartino Booth

With the Federal Reserve having expended almost all monetary tools now, the only major course of action left, short of directly buying ETFs, is more quantitative easing, said Danielle DiMartino Booth, CEO of Quill Intelligence.

“If you’re at the zero bound, and the Fed has been at the zero bound for much of the last decade, if you’re at the zero bound, the only discussion you’re really having is how do we get more product, how do we get more [quantitative easing],” Booth told Kitco News.

Booth was a former advisor with the Federal Reserve Bank of Dallas from 2006 to 2016, working with Richard Fisher. She is author of “Fed Up: An Insider's Take on Why the Federal Reserve is Bad for America.”

Quantitative easing in 2020 was expedited by COVID, but had already started before the pandemic, Booth noted.

“You have to go back to October 2018, two years ago to see when the first shot came across the bow, that’s when this crisis started. That is when the great buildup of debt began and prompted Powell to pivot after the bloodbath that we saw in December of 2018, which prompted Powell to say, ‘you know what, quantitative easing wasn’t such a bad idea, I apologize for saying that back in 2012,’ and then by the time we got to September 2019, he was doing ‘not QE’, blowing up the Fed’s balance sheet,” she said.

On fiscal stimulus, expectations for an increase from the Democrats are keeping stock markets afloat, Booth said.

“If there is a blue wave, if there is a blue sweep, markets are in a way, celebratory,” she said. “That’s why we’ve seen rates back up a little bit, and that’s why gold is kind of caught in the middle of all of this conflict because if we’re going to see a massive stimulus spending bill, then, the bond vigilantes might be able to wake up after 40 years in hibernation,” she said.

Markets have not yet priced in several key macroeconomic risks, including the possibility of more economic contraction, Booth said.

“I don’t think markets have the economy sliding back into contraction in the fourth quarter factored in. I don’t think that markets have [priced in] the potential disruption of a lame duck congress not being able to pass stimulus until the very end of January, therefore the onset of the household credit cycle,” she said. “Gold will be the ultimate beneficiary though.”

 

By David Lin

For Kitco News

 

David

Expect ‘seismic change’ and major markets sell-off after election – Mark Skousen

Former Vice-President Joe Biden is currently leading in the polls, two weeks before the election, and should the Democrats win, major changes will happen to legislation that could seriously hurt investors, according to Mark Skousen, editor in chief of Forecasts & Strategies.

“I think you could have a seismic change on November 3rd that will cause investors to sell their stocks dramatically because if you’re going to raise the long-term capital gains rate…how many people have tremendous profits in technology stocks and gold stocks, why not take money off the table and sit and wait,” Skousen told Kitco News on the sidelines of the New Orleans Investment Conference.

Skousen is the current Presidential Fellow at Chapman University, having formerly taught finance and economics at Columbia University and Columbia Business School. He was an analyst for the CIA and authored more than 25 books on economics.

It’s still possible that despite Biden leading in the polls, President Donald Trump could still win by surprise, as he did in 2016, Skousen noted.

“There’s no guarantee that the Democrats are going to pull it off because people are not excited about Biden, it’s more of an anti-Trump type of a vote,” he said.

Skousen said that research has shown that a stock market bull run three months before the election usually indicates that the incumbent will win a presidential election, but the environment this time is different, marked by an ongoing recession, and unprecedented hatred for the current president.

 

By David Lin

For Kitco News

David

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