Higher gold prices will continue as long as Covid-19 does

The fundamental factors which have taken gold pricing from $1460 in March, to within four dollars of $1800 per ounce this week are still present, and they continue to be highly supportive of gold prices. First and foremost, and at the root of other fundamental issues is the global Covid – 19 pandemic which is now in its fourth month. In that short period of time the total number of reported cases globally has swelled to 9,649,299, resulting in the loss of 487,800 souls.

The pandemic resulted in businesses globally shutting down as countries went into a lockdown mode to slow the spread of the virus. This lockdown led to a massive global unemployment rate. In the United States as of June 22nd 33 states still have double digit unemployment rates. Even with a fractional improvement from the April unemployment rate of 14.7%, the unemployment numbers for May were a staggering 13.3%. The number of individuals unemployed in the United States is approximately 30 million, leaving one out of ten Americans jobless.

The U.S. Treasury Department has allocated roughly $3 trillion in aid through the “CARES Act”. The Federal Reserve took interest rates to near zero and simultaneously infused liquidity into the economy through a monetary policy of quantitative easing and added $3 trillion to their balance sheets as they purchased mortgage-backed securities, U.S. treasuries and now corporate bonds. These actions are not isolated as many other central banks including the European Central Bank have implemented extremely accommodative monetary policies.

Also, highly supportive of gold pricing are rising tensions between the United States and China in regards to the trade war. In a letter to lawmakers on June 24, the Pentagon provided a list of 20 “Communist Chinese military companies” operating in the United States.

According to Time magazine Pentagon spokesman Jonathan Hoffman said “As the People’s Republic of China attempts to blur the lines between civil and military sectors, ‘knowing your supplier’ is critical. We envision this list will be a useful tool for the U.S. government, companies, investors, academic institutions, and like-minded partners to conduct due diligence with regard to partnerships with these entities, particularly as the list grows.”

Not since the financial crisis of 2008 have, we witnessed the kind of economic upheaval that is currently plaguing countries worldwide. Not since the financial crisis of 2008 have, we seen gold pricing gain value at such a rapid pace. It seems highly likely that until the pandemic has run its course and the global economy returns to pre-pandemic numbers, that we will continue to see gold prices at this level or higher.

 

By Gary Wagner

David

What trend-line analysis suggests gold prices will be on Jan. 1 – brace yourself

I don't like to beat around the bush and I'll bet you don't either. So, let's make this quick. Nearby Comex gold futures hit a 7.5-year high of $1,783.10 Wednesday. The August futures contract hit a high of $1,796.10. The all-time high in nearby gold futures was $1,920.70, hit in September of 2011.

Take a gander at the weekly continuation chart for nearby Comex gold futures. Prices are in an accelerating uptrend as seen by the three trend lines that get progressively steeper. Trend-line analysis, using the latest, steepest trend line, projects the following prices in the following timeframes: Sept. 1–$1,886; Nov. 1–$2,040; Jan. 1–$2,213.

Of course, technical chart analysis is an imperfect art. However, most of the “smart money” in the marketplace will attest that studying technical price charts provides more trading success than solely examining supply and demand fundamentals in a market.

Jim Wyckoff

David

Russia ramped up gold production right before COVID-19 hit

Prior to the coronavirus paralyzing the world, Russia was ramping up its gold production, according to the Union of Gold Producers of Russia.

Russia’s total gold output reached more than 64 metric tons in Q1, which is up 5.11% from the same period last year, the union said.

“The coronavirus pandemic did not impact Russian gold mining companies’ production performance during the first three months of 2020. On the contrary, the results of the first quarter (Q1) maintained the trend of 2019, when Russia reached its record high in gold output,” says the union’s chairman Sergey Kashuba.

Total gold mined, excluding recycled gold, was up 4.6%, reaching more than 48 tons in Q1, the union added.

After March, however, gold production saw problems due to COVID-19 shutdowns.

“Problems with shift changes and the direct impact of the coronavirus on the health of gold mining workers began to affect production in April and May,” Kashuba noted. “That is why we will be carefully analyzing the results of gold production in the second quarter.”

As of now, the union still expects to see “a slight increase” in gold production in 2020, which would equal to 0.5%-1% rise compared to the record production levels of 2019.

Russian silver production, on the other hand, fell in Q1, dropping by 3.6% to total 338.92 tons.

Russian diamond giant, ALROSA, has fared less well due to COVID-19 than precious metal miners.The international market dried up for diamonds forcing production cuts on ALROSA.

In May ALROSA announced it was cutting production to 28–31 million carats versus its initial guidance of around 34 million carats. Commercial production at its Verkhne-Munskoye deposit was cut. ALROSA already suspended operations at Zarya and Aikhal earlier in the year.

Russian recovery after all the coronavirus-related shutdowns has been sluggish so far, noted ING chief Russia economist Dmitry Dolgin.

“Following the release of the full set of Russian data for May, including estimates of GDP growth, metrics of economic activity by households and corporates, as well as banking statistics, it appears that having passed the low point in April, Russia is now showing some signs of improvement, though at a very modest pace,” Dolgin wrote on Tuesday.

June is also likely to show further economic improvement but the recovery is looking to be slow, the economist added.

“June economic activity should be free from most of the lockdown restrictions and should be better than May, especially on the consumer side. At the same time the corporate activity is likely to remain under pressure of OPEC+ commitments and uncertainties related to medium-term consumer demand expectations. Based on this, the Russian fiscal and monetary authorities may experience calls for further support,” Dolgin said.

 

By Anna Golubova
For Kitco News

 

David

Low interest rates will last more than two years – David Rosenberg

It is inevitable that the global economy will see a bounce in activity after being devastated by the COVID-19 pandemic, but don’t expect it to reach pre-crisis levels any time soon, according to one economist.

In an interview with Kitco News, David Rosenberg, chief economist at strategist at Rosenberg Research and Associates, not only warned investors to expect a slower economic recovery but also that they shouldn’t look at equity market valuations as a signs that everything will be back to normal soon.

Although equities markets have seen their biggest rally in history off the March lows, Rosenberg said that the rally is being artificially supported by massive stimulus measures from the Federal Reserve and the federal government.

Last week, optimism for a V-shaped recovery picked up after the U.S. government reported a strong rise in retail sales in May. However, Rosenberg said that increased consumption is not sustainable.

“Maybe it shouldn't have been that big of a surprise when you consider that in the month of April, the U.S. government handed out $3 trillion,” he said. “That is basically charity money from uncle Sam to keep social stability intact.”

“Since then, industrial production and housing starts, both came in below expected, but you see, as long as the stock market's going up and up and up the people are going to believe that everything is good,” he added.

As to how to navigate these financial markets that have been artificially stimulated, Rosenberg said that it makes sense to hold some gold.

“All the central bank alchemy has led to these ever increasingly unstable markets. And we have to realize that volatility works in both directions up and down,” he said “Gold is going to do very well against this backdrop.”

Looking at interest rates, Federal Reserve is forecasting interest rates to remain at the zero-bound target for the next two years; however, Rosenberg said that a report published by the San Francisco Federal Reserve that looked at pandemics through the ages and the study suggests that rates could remain lower for much longer.

Quoting the report, Rosenberg said that the conclusion of the research shows that historically after a major pandemic, interest rates have remained low for decades afterwards.

“There's still going to be this lingering output gap, which is why [the Federal Reserve is] going to have rates close to zero for many years to come, I think beyond just a 2022,” he said.

Instead of looking at value plays in equity markets where valuation is tainted with central bank stimulus, Rosenberg said that investors should look for growth opportunities. Some of the sectors Rosenberg said that he likes include big tech as more and more people use technology to work from home, healthcare, and consumer staples and grocery stores that have developed strong online delivery programs.

 

By Kitco News
For Kitco News

David

Analysts ask if gold is ready to push above $1,800

Building on Friday's momentum, gold prices are starting the week on a strong note and are pushing back to within striking distance of critical resistance at $1,800 an ounce.

August gold futures last traded at $1,771.70 an ounce, up 1% on the day. According to market analysts, gold is getting a boost Sunday evening as investors start to question the health of the global economic recovery as the COVID-19 pandemic continues to spread unchecked, particularly in the U.S.

"While social distancing during March and April helped slow the spread, re-opening activities in a number of states – most notably Arizona, Alabama, Arkansas, South Carolina, North Carolina, Florida and Texas – have coincided with a wave of infections that may be spreading further south and west relative to the early affected states. In that sense, the recent increase in cases represents a "rolling," as opposed to a second, wave of COVID-19 in the U.S.," said economists from Nomura in a report late Friday.

However, although bullish sentiment is strong in the gold market, some analysts are warning that the precious metal might not have enough steam to break through its months-long trading range.

Marc Chandler, chief market strategist with Bannockburn Global Forex, warned that momentum indicators show that investors should use caution at current levels. He noted that in the 2008 Financial Crisis, gold didn't break out to new highs until the fourth quarter of 2009.

"Recall in mid-May, gold pushed to $1765 and reversed lower. The MACD is neutral, and the Slow Stochastic looks poised to turn lower. That said, many are looking for a move to $1800," he said in a research note Sunday.

Chris Weston, head of research at Pepperstone, also highlighted neutral sentiment and positioning in the gold market; however, he added that the precious metal is back on investor's radar after prices pushed back above $1,750 an ounce.

Daniel Dubrovsky, analyst at DailyFX.com, said that although gold is testing the top of its range, it needs a new catalyst to breakout. He added that weaker equity markets could spark a new uptrend for the precious metal.

A major risk event he said he is watching this week is the International Monetary Fund's updated forecast to be released Wednesday.

 

"The International Monetary Fund is going to update 2020 growth prospects ahead and those may paint a still-dismal picture," Dubrovsky said in a report Saturday. "Absent a shock that sinks equities, it seems that gold prices could continue to struggle in directionless trade."

Currency analysts at Brown Brothers Harriman said that there are expectations for the IMF to lower their growth forecasts to be more in line with recent projections from the Organisation for Economic Co-operation and Development, which sees the global economy contracting by around 6% this year.

 

Gold's technical picture is not its only headwind as it tests long-term resistance below $1,800 an ounce. Analysts note that the precious metal is entering its seasonally slow period.

In a recent interview with Kitco News, Jeff Clark, senior precious metals analyst at Goldsilver.com, said that although he is bullish on gold long-term, he wouldn't be surprised to see lower prices in July and August.

He added that any drop in gold should be seen as a buying opportunity.

"September is generally the best performing month of the year for both metals," he said. "So, I would definitely want my exposure before then."

 

Neils Christensen

David

Goldman raises 12-month gold forecast by 11% to $2,000 an ounce

Silver’s 12-month forecast pegged at $22/oz

Gold prices are likely to reach $2,000 an ounce in 12 months on the back of low real interest rates and concerns over currency debasement, even as developed markets emerge from COVID-19 lockdowns, lifting risk-on sentiment, according to a note Friday from Goldman Sachs.

The investment bank raised its 12-month forecast on gold to $2,000 an ounce, from $1,800. It also lifted its three-month view to $1,800 from $1,600 and its six-month forecast to $1,900 from $1,650.

“Gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates,” wrote analysts at Goldman Sachs. “Simultaneously, we see a material comeback from [emerging market] consumer demand boosted by easing of lockdowns and a weaker dollar.”

The analysts estimated that “fear” driven investment demand lifted gold by 18% this year, but the negative shock to “wealth” produced an 8% “drag.” They pegged the net effect at 10%, which coincides with gold’s year to date rise of 13%.

The most-active August gold contract GCQ20, +0.18% settled at $1,753 an ounce, up $21.90, or 1.3%, on Friday and was nearly 14% higher for the year so far.

The Goldman analysts expect strength in development market investment demand to “persist even as economies recover, supported by fears of debasement and the higher level of economic uncertainty of the crisis.”

Still, for gold prices to go materially above $2,000, inflation will need to move above the Federal Reserve’s 2% target and this move would need to be met with a muted policy response, they said.

The analysts also raised their 12-month silver forecast by nearly 47% to $22 an ounce, from a previous forecast of $15. They said “coordinated global stimulus” will help generate global industrial production growth and economic activity.

“As the economy recover and ‘fear’ based demand for gold moderates, we expect silver industrial demand to increase, giving up prices,” they said.

In Friday dealings, July silver SIN20, -0.12% rose 34 cents, or 1.9%, to $17.847 an ounce, though the contract was still down by more than 1% for the year so far.

 

By Myra P. Saefong

David

Jerome Powell says that the economy's path ahead likely to be challenging

The primary mandate of the Federal Reserve has been to prioritize the goal of maximum employment at the top of the list. Not since the days of the Great Depression has this task been so daunting. Last week an additional 1.5 million Americans filed for unemployment benefits even though there have been signs and sources touting that the economy has been improving.

For the week ending on June 6, the number of Americans receiving unemployment benefits was 20.5 million individuals. That calculated to an unemployment rate of 14.1%. The Fed is on record forecasting that the unemployment rate will go down to 9.3% by the end of 2020. Although that is roughly 1/3 lower than the current rate it is well above the former rate of just 3.5% recorded in February. It is data such as this that has resulted in such a cautionary tone by the Federal Reserve. It is also the primary reason that the Fed is struggling with an uphill battle for the American worker.

Powell speaks to Youngstown leaders

In a speech today made via videoconference to the local leaders of Youngstown, Ohio, the Fed Chairman said that, “The U.S. economic recovery from the novel coronavirus epidemic is set to be challenging and there will be no quick fix.”

"We will make our way back from this, but it will take time and work … The path ahead is likely to be challenging. Lives and livelihoods have been lost, and uncertainty looms large. "

According to the New York Times, “Earlier this week, in two separate appearances before lawmakers in the U.S. Congress, Powell made plain that the United States faces a long overall recovery despite recent encouraging economic data on job gains and consumer spending.”

St. Louis Federal Reserve bank President, James Bullard said that he “was hopeful the worst of the economic crisis caused by the coronavirus pandemic may have passed in April, but the U.S. economy is not yet in the clear… I definitely don't think we're out of the woods. We're still at a high, high risk level here.”

Add to these genuine concerns about the economic fallout of the pandemic are the increasing tensions between the United States and China. North Korea’s current posturing in regards to South Korea. The skirmish on the Chinese and India border.

It is those types of warnings and geopolitical hotspots that may have a sobering effect, tempering recent gains in US equities. It could also create some very potent factors which could develop into a perfect storm scenario taking gold beyond this year’s current high of $1788 as it trades above $1800 by the end of the year. It might also have provided the needed kick to allow market participants to refocus upon the safe haven assets like gold.

 

 

By Gary Wagner

David

Gold pricing; the last four years and $500 later

It is important to have realistic goals in terms of where we believe gold pricing is headed, and more importantly how long it will take to get there. First and foremost, we must acknowledge the tremendously large move that we have seen over the last four trading years. The multiyear correction began in the middle of 2011 and concluded at the beginning of 2016.

This correction took gold pricing from its all-time record high above $1900 per ounce to just above $1000 per ounce. In other words, gold has lost almost approximately half of its value in five years. However, that all changed when gold pricing dropped to a low of 1045 at the end of 2015 and began to rise in 2016. By April 2016 gold had gained a little over $300 and traded to its highest value since the correction at $1378.10.

Market participants and investors remember the period between the middle of 2016 through 2019 when gold prices had tremendous resistance at $1380 and had three failed attempts at taking out that price point. It seemed as though a break above $1400 was unachievable for a protracted time period.

Finally, in 2019 we actually saw gold prices begin to make a strong bullish run to higher pricing. In January 2019 gold was trading roughly at $1280 per ounce, and by August of that year it would climb to its highest trading value of the year reaching $1560 in just eight months. After a short correction, gold pricing moved back into rally mode and closed at $1560.

This year we have seen tremendous price swings but the result has been that gold trading to its highest price point since the multiyear correction ended in 2016 hitting $1788 per ounce.

Currently prices have been trading sideways for the last three months. As it stands now gold futures have been trading in a tight range and are currently fixed at $1730 per ounce. More so in the last 6 months in which gold has risen over $500 the U.S. dollar has moved an astonishing 7 whole points higher from a low of about 95.50 to 103.72 three weeks later back to where it rests currently 97.42.

While many gold traders and investors have been frustrated at the lack of movement to the upside in gold it is important to take a historical perspective of where gold prices have been over the last four years.

While many analysts including myself are looking for higher pricing this year, most likely it will not be a decisive and clear path to the upside. Rather it will be a series of peaks and valleys that I believe will take gold prices take to $1800 and above by the fourth quarter of this year. The facts are that since 2019 gold has recovered roughly $500 of the value lost during the multiyear correction. Currently pricing is just under $200 from its all-time high.

This year has been ripe with fundamental events that have sent the global economy into a downward spiral. The global pandemic is far from being over and economic fallout that will follow has not even begun. Add to that the geopolitical hotspots that have recently surfaced. China and India have moved troops to the border between those two countries. North Korea recently blew up the liaison office in Kaesong, signaling hostilities between the North and South. China has been imposing new security laws in Hong Kong. Lastly the trade war between the United States and China not only remains at an impasse, but the phase-one agreement reached earlier this year have begun to unravel.

The current fundamentals in play could have a profound impact on where gold pricing heads towards the end of 2020.

 

 

By Gary Wagner
Contributing to kitco.com

 

David

Gold price to break record by year-end; bullion premiums normalizing – Peter Hug

Gold prices could see 2011 highs of $1,920 an ounce or higher, said Peter Hug, global trading director of Kitco Metals, who noted that a full economic recovery won’t materialize until later next year.

While seasonal softness is expected for the yellow metal during the summer months, the medium term trajectory is still constructive, Hug said.

“Short-term, especially given the seasonal factors, [gold prices] have a bit of softness, but by year-end I think the 2011 high in gold, which is $1,920, will be there or higher,” he said.

Pandemic fears are still far from over, Hug said, and many fundamental risks to economic growth are likely to remain until at least next year, noting that unemployment unlikely to fall below 10% by year-end, in contrast to the Federal Reserve’s projection of 9% by year-end.

Prolonged damage to the economy could see another correction in equities, he added, and should another correction take place for risk assets, gold may be pulled down with stocks before another rally were to take place.

“I don’t think that would be bullish for the metals. I think the initial reaction for the metals would be lower as people begin to panic and start to raise cash,” he said.

Meanwhile, bullion premiums have come down for most products.

“A couple of weeks back when I was on the show, I indicated that we strongly advised our clients not to buy physical and chase the premiums and our clients have been rewarded accordingly. Gold Buffalo and Eagle premiums have come down to pre-COVID prices,” he said, adding that some logistical challenges for transporting bullions across the globe still remain.

 

By Kitco News

David

Thieves make off with C$10 million in silver bars

Robbers used fake documents to steal $10 million of silver bars from a Montreal-based transportation company.

On January 20 robbers took possession of a container filled with 596 silver ingots using fake documents, according to a report by CTV News.

The police are asking for tips that could solve the case. Call the Info-Crime line at 514-393-1133. A reward of up to $2,000 will be given to anyone who can provide information leading to an arrest.

 

By Kitco News

David