Emergency Fed action takes traders by surprise

As a preventative measure, the Federal Reserve today announced that they implemented an emergency move by having the central bank cut interest rates prior to the next FOMC meeting which will be held on March 18. Without any question this move is extremely rare to implement any monetary change prior to a FOMC meeting.

The Fed stated their decision was unanimous, and this decision occurred shortly after the G-7 finance ministers and central bankers promised to use all available tools to battle the slowdown caused by the disease (corona virus).

According to a statement released by the Fed, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.”

After the statement was released chairman Jerome Powell held a press conference in which he stated “Officials saw the virus spreading and this represented a material change in the outlook for economic growth.” He also expressed the rationale for the Fed initiating this emergency move, “We’ve come to the view now that it is time to act in support of the economy. Once we reached that decision, we decided to go ahead.”

The chairman also said that he believes “that our action will provide a meaningful boost to the economy.”

However, market participants, traders and investors were not so convinced. That proof is in the fact that U.S. equities were trading higher prior to Jerome Powell’s press conference and then began to selloff as he made his announcement and the rationale behind it.

The Dow hit a high today of 27,084.84, but it closed at 25,917, after factoring in today’s decline of 786 points which is just shy of a 3% loss on the day.

The 3% decline in the Dow is almost equal to the price gains in gold today of 2.76%. Gold futures bases the most active April contract gain $44 on the day and closed at $1638.80. While the upside move in gold in response to the emergency action by the Federal Reserve was logical and within expectations of how the safe haven asset would react. The same cannot be said for U.S. equities which were initially higher but sold off dramatically to the same information. Typically, when the Federal Reserve cuts rates it is bullish for both risk on and safe haven asset classes. That did not occur today.

Wishing you as always, good trading,

 

 

 

By Gary Wagner
Contributing to kitco.com

 

David

Two reasons that gold moved Higher

Gold had an exceptional day, breaking the strong price declines gold had last week. Although it closed twenty dollars off of last night’s high of 1612.10, it still had managed to gain $23.50, with April gold closing at $1590.

It was not one but two primary reasons that we saw such a strong move in gold. The first was statements made by many global central-banks. Also the belief that the Federal Reserve’s monetary policy will be revised and announced at their next FOMC meeting to be held on March 18. Previously according to the Fed’s dot plot, they had planned to keep interest rates unchanged throughout the entire year of 2020. However recently many analysts have been on record stating that the Federal Reserve will revise that monetary policy to now include rate cuts.

According to the CME’s FedWatch tool there is a 100% probability that in March the Fed will reduce rates. Currently they are on record stating they planned to keep rates unchanged this year at 150 or 175 basis points (1.5% to 1.75 %). In fact, the prediction for March is that there is a 100% probability that rate will go to 75 basis points. More importantly is the FedWatch tool’s prediction for the April FOMC meeting could contain a second rate drop this year. With a 71.8% probability that the Fed will lower rate to as low as 1%.

To see the FedWatch tool have a prediction of a 100% probability is extremely rare and strong, but to have three consecutive months that show consistent rate drops is an exceptionally sharp revision of their current monetary policy.

The sharp revision to a much more accommodative monetary policy by the Federal Reverse is in tandem with many other central banks. The Bank of Japan’s governor Haruhiko Kuroda stated on Monday “The central bank will make every effort to ensure stability in financial markets roiled by the coronavirus outbreak. The fact that the central banks have become so much more accommodative and rate reductions are planned in multiples rather than a single event underscores the second reason that gold move higher today.”

It is the common acceptance that the current corona virus outbreak will most certainly deepen until a vaccine is created. The longer that takes the higher the probability the current “epidemic” becomes a pandemic. Since currently we have seen a major effect on the global economy in terms of contraction should this occur it will have a devastating impact on global economic growth leading to lower stock prices globally, which would put the safe haven asset of gold as the most realistic and viable alternative place to park that investment capital.

For those who would like more information simply use this link.

Wishing you as always, good trading

By Gary Wagner

David

The only gold price question Scotiabank is asking is how sharp is the uptrend

Gold’s recent disappointing performance is not affecting sentiment at the world’s largest mining conference as one market analyst expects prices to continue to push higher through 2020.

Nicky Shiels, commodity strategist at Scotiabank, kicked off her precious metals outlook, at the Prospectors and Developers Association of Canada 2020 conference in Toronto, Canada, by declaring that “Gold was back in vogue,” and embarking on a new uptrend.

She added that the only question for the precious metal is the trajectory of the uptrend for 2020. Looking at prices, Scotiabank has increased its forecast for the year; Shiels said that she sees gold prices pushing to $1,750 an ounce and averaging the year at $1,625 an ounce, a 1.5% increase from the previous forecast.

In the medium to long term, Shiels noted that there is a possibility that prices rally to $1,900 an ounce.

Her comments come as gold prices see a positive start to the week after Friday’s sharp selloff. Sunday evening, gold prices pushed back to within striking distance of gold. April gold futures last traded at $1,584.20 an ounce, up more than 1% on the session.

Growing fears that the spreading coronavirus will weigh on global growth, a dovish Federal Reserve, weaker U.S. dollar and equity market volatility will all support gold prices, said Shields. Even with gold holdings in exchange-traded products at record highs, the analyst said that there is still room investment demand to grow.

“Gold remains an investment story,” she said. “Generalist investors remain underweight gold. Investors owned three-times more gold in their portfolio when prices peaked in 2011.”

Shiels added that even with the near-panic sentiment in the marketplace, gold’s fear premium is only around $60. She said that historically, this fear premium has swung plus or minus $200.

“Gold hasn’t priced in peak fear,” she said.

Shiels added that she is also bullish on gold as the yellow metal continues to dominate currency markets. She noted that gold has hit record highs in all major currencies except the U.S. dollar.

She added that it is only a matter of time before the U.S. dollar becomes the next shoe to drop.

“Gold is a reliable hedge against growing U.S. debt,” she said. “Enormous deficits bring into question the role of fiat currencies.”

Looking at silver, although Scotiabank is bullish on the metal, Shiels is not as upbeat as she is compared to gold.

The bank sees silver prices averaging the year around $19 an ounce.

 

Fundamentally, Shiels said that the silver market is oversupplied; however, prices should follow in gold’s slipstream.

“Silver will remain a cheap high beta to gold,” she said.

Scotiabank is also bullish on Platinum Group Metals as a whole. The bank sees prices platinum prices pushing back above $1,000 an ounce and palladium could go as high as $3,000 an ounce.

 

By Neils Christensen
For Kitco News

 

David

Palladium slumps nearly 13%, gold up to 4.6% as precious metals join virus-led free fall

* Palladium facing its worst daily performance since 2008

* Palladium sheds about $390 from Thursday’s record high

* Platinum on track for worst week since 2008

* Silver set for its biggest weekly decline since 2011

Feb 28 (Reuters) – Palladium led a free fall in precious metals on Friday, slumping nearly 13% at one point earlier in the session, while gold slid as much as 4.6% en route to its biggest daily drop in almost seven years, as coronavirus drove panic-stricken investors to liquidate assets across the board.

The rout hammered other precious metals as well, with platinum declining as much as 6.1% and silver sliding 7.4%.

“A lot of investors and traders are having to meet margin calls for other products, so they are selling what they can. That’s why it is hitting gold and the gold mining stocks,” said Michael Matousek, head trader at U.S. Global Investors.

“People are trying to sell whatever they can. It’s an overall sell-off.”

Spot gold plunged 4.5% to $1,568.96 per ounce as of 2:15 p.m. EST (1915 GMT), leading to the biggest one-day percentage decline since mid-2013. U.S. gold futures settled down 4.6% at $1,566.70.

The precious metal saw sharp price swings this week, having hit a seven-year high of $1,688.66 on Monday. The metal is now on track to post its steepest weekly decline since November, 2016.

The rapid spread of the coronavirus raised fears of a pandemic, with six countries reporting their first cases and the World Health Organization warning it could spread worldwide.

The virus panic sent world share markets on course for their worst weekly fall since 2008, with almost $6 trillion wiped from their market value so far this week.

“As sentiment has deteriorated, investors have closed some of their open positions in currencies, but most likely also in gold. Therefore, gold prices have failed to make new highs now that equity markets have aggressively sold off,” ABN Amro analyst Georgette Boele wrote in a note.

“If risk aversion were to result in a market panic, investors will find cash and very liquid assets attractive. They will probably liquidate gold investment positions.”

In other precious metals, palladium was down 10.8% to $2,538.21 per ounce, its worst one-day performance since the 2008 financial crisis, after slumping 12.7% earlier in the day. The metal has shed about $390 from a record high of $2,875.50 hit on Thursday.

“With palladium it is a similar phenomenon, where people need to sell to cover up their losses elsewhere,” said Ryan Giannotto, head of research at GraniteShares.

The auto catalyst metal was still on track to gain for the seventh consecutive month due to a sustained supply shortfall.

Platinum shed 5.5% to $849.63, facing its worst weekly fall since 2008.

Silver plunged 7.2% to $16.43 an ounce, on track for its worst week since 2011

 

Reporting by Swati Verma and Brijesh Patel in Bengaluru; Editing by Steve Orlofsky and Jonathan Oatis

David

Why are stocks and gold both under so much selling pressure?

Over this entire trading week analysts, traders and investors have remained bewildered not so much at the extent of the selloff, but analysts and investors were even more perplexed at the major selloff that occurred in gold in tandem with an asset class that traditionally carries a negative correlation. With so much warranted selling pressure in global equities many have been perplexed as to why gold found no support and not only sold in tandem with risk on assets, but had deep and severe drawdowns at a time when many believed investors would flock to the safety of gold.

Over the last two days I have been speaking about the last time market participants witness this kind of carnage in both risk on and safe haven assets simultaneously; that was 2008 immediately following the financial crisis created from the banking crisis. I remember that during the 2008 – 2009 financial recession we witnessed the simultaneous mass liquidation in both equities and gold.

In 2008 analysts explained that the unique phenomenon was a result of mass liquidation of all assets to cover margin calls as well as a major component of fear resulting in the liquidation of any investment vehicle that wasn’t bonds or cash.

That being said today’s dramatic $55 decline in gold futures is extremely hard to fathom in light of the first real correction in U.S. equities since 2008. This week the markets lost approximately 13%, with the Dow Jones industrial average down 12% on the week. This kind of selling hysteria has not occurred for over 12 years.

Before gold began its historical climb to the record high of $1900, gold first hit an all-time high of $1000 per ounce, before retracing a full 30% to $700. It was only after that deep correction occurred that market participants interest in gold accumulation and investment interest reemerged.

Which brings me to the following assumption, this most current selloff is much different than the financial crisis of 2008. Unlike a recession caused by a fragile economic scenario, the world has never experienced a full-blown pandemic since 1918. Although there were isolated and smaller pandemics in 1930,1940, and 1950, they all pale in comparison to the influenza pandemic which is considered the most severe pandemic in recent history. The 1918 pandemic resulted in an estimated 500 million people, or roughly 1/3 of the world population becoming infected by the virus. By the conclusion of this pandemic at least 50 million individuals worldwide died including 675,000 deaths occurring in the United States.

The similarities between then and 1918 are shockingly similar in that there is no vaccine to protect against this type of influenza.

The only silver lining to any comparison of 1918 pandemic to the potential of the current epidemic becoming a full-scale pandemic is that modern science and medicine is grown by leaps and bounds over the last 100 years. That allows the world population much more hope that it is still possible to contain this formerly unknown contagion.

However, until a vaccine is developed the current fear of a potential pandemic is alarmingly real, and completely a viable outcome. So, we hope for the best and prepare for the worst and realize that in between the markets could experience continued extended volatility and deeper price corrections.

For those who those who would like more information simply use this link.

Wishing you as always, good trading,

 

By Gary Wagner

Contributing to kitco.com

David

Shark Tank's Robert Herjavec: the scariest threat to safety is not just coronavirus

The coronavirus has not only left the world paralyzed with fear of getting sick, but also presents new opportunities for hackers to attack the private sector, this according to Robert Herjavec, founder and CEO of Herjavec Group and star of Shark Tank.

“Robert Mueller had a great saying, which was ‘there’s only two types of companies, those that have been hacked and those that are about to be hacked,’” Herjavec told Kitco News. “What I tell people is, ‘I can’t stop you from being hacked, but I can create an ecosystem [such] that when you have an intrusion, you can quickly know it’s going on.’”

Herjavec, who helms a cyber security solutions company, said that a large number of cyberattacks come in the form of email phishing.

“My general rule for people that work at companies is anything that isn’t business oriented, that you don’t know the source of, you probably shouldn’t be opening it up at work,” he said, adding that a personal email account that gets phished can be an inconvenience, but exposing an entire company to such a risk can be “really bad.”

The security compromises from the U.S. presidential elections in 2016 have put cyberattacks at the nationwide level on the public’s radar, thereby lowering the chances of electronic voting taking place in the near future, Herjavec said.

“My big hope was that we’re going to have electronic voting, because if I can vote from my phone, from an app, guess what? You’re going to have voting rates way above 30%. With what happened last election, what it’s made people realize is it’s fundamentally not safe,” he said.

David

Catching gold's elusive $1,700 level: Prices eye coronavirus cases, U.S. Super Tuesday — Pepperstone

The pullback in gold prices offers a buying opportunity, according to Pepperstone, which remains bullish on the yellow metal as it looks to add longs on a move through $1,660 an ounce.

“Investment case hasn’t changed. We are seeing more compelling signs playing through. Gold is trading as a currency in its own right,” Pepperstone’s head of research, Chris Weston, said on Wednesday.

Gold has made solid gains in all kinds of currencies and when there is “too much euphoria” around the gold price it is natural to see some profit-taking, Weston pointed out.

“Gold in theory should be going higher,” he said.

There is fear that coronavirus could spread throughout Europe and the U.S., impacting the supply chains further.

“In this environment, when bond yields continue to make new lows, implied volatility is high, and chances that we are going to need to see not just emerging market central banks coming to the party but also the Federal Reserve cutting rates … gold will trade higher,” he said.

A key level to keep an eye on is a $1,635 downside, Weston noted. “Until a price can close below there on a daily basis, we continue to expect higher levels playing through,” he stated.

If gold can remain above $1,635, then the market can continue to build a base and trading can get its bullish momentum back, Weston added, noting that a move above $1,660 could be enough to get gold to $1,689 and then possibly to even $1,700.

“We are still holding that bullish bias in the short term. In fact if we get a move back above $1,660, we would have more confidence that we can make a move back at $1,689 and perhaps into elusive $1,700 level,” he said.

The investment backdrop is positive for gold going forward, according to Weston, who is watching how the coronavirus spreads from here.

“The coronavirus is causing major concerns, and just when the market feels comfortable that recovery rates are improving in China and business slowly comes back towards normal production, the threat of outbreaks in Germany, and the U.S. grip markets – we are already seeing the number of cases in Italy, Korea and the Middle East increasing and stringent measures to contain the spread will impact economics here.”

Gold investors should also be paying attention to the U.S. Super Tuesday on March 3, especially with Bernie Sanders doing well in the polls, Weston noted.

“On the political side we gear up for Super Tuesday (3 March), with expectations high that Bernie Sanders will do well here – gold is our clear hedge against political angst here,” he said. “My theory at the moment is buy the dips in gold prices, break below $1,600 on the downside probably changes that.”

 

By Anna Golubova
For Kitco News

David

Looking to $2,000 gold price: Coronavirus is the ‘straw that broke the camel’s back’ — Sprott CEO

The coronavirus was the shock that gold was waiting for before moving to higher levels with charts now pointing to an eventual breach of $2,000 an ounce, according to Peter Grosskopf, CEO of Sprott Inc.

“What the coronavirus added [was] a shock to the economy. I would call it a straw that broke the camel’s back. Economies were already at best shuffling along with a lot of weakness in Europe and China, and this is going to just push things over the edge,” Grosskopf told Kitco News on Monday.

Gold is an anti-confidence thermometer and when the precious metal is going up along with the U.S. dollar, it shows that the confidence is starting to break, Grosskopf said.

Dealing with the coronavirus fallout means that the central banks around the world will need to go back to heavy easing mode, which is beneficial for gold, Sprott CEO noted.

“China already pumped a massive amount of liquidity into their system in order to offset the shock to the banking system there. They are already printing as fast as they can. Now, you are going to get the same sort of thing in Europe with Italy taking a major hit to GDP,” he said. “You don’t need to be an economist or a student of macro markets to understand that this was not in the plan.”

But in order to fully gauge where gold could go from here, investors need to understand the big picture, which is engrained in too much debt.

“Gold is underpinned by a growing belief that there is too much debt in the government sector and the easing that the central banks have been aiming at the markets are going to continue to be required just to sustain those debt levels,” Grosskopf explained.

The CEO pointed to the Federal Reserve pumping all kinds of liquidity into the system when repo rates spiked in 2019.

“There is so much debt now and they continue to create more and more debt through budget deficits. It is just a fact that no central bank can sustain higher interest rates, so they need to keep printing money to keep what’s currently there going. That’s the bigger picture,” he said.

What this means for gold is a major move higher, including a possible breach of $2,000.

“I recently reviewed a charting package from Cornerstone Macro. The charts almost all unanimously point to between $1,800-$2,000 easily. Gold’s sentiment right now is running very strong. And usually when sentiment runs very strong, there is room for a bit of a short-term correction but nothing major. I would say pretty confidently that the charts point to $2,000 plus,” Grosskopf said.

In terms of investment opportunities, Sprott CEO highlighted small cap gold equities and silver as having the most potential at the moment.

“The big caps gold equities have already reflected increased investor interest. But a lot of the smaller caps are still left behind and ignored. I would say pick a portfolio of smaller capped gold stocks that are leveraged to the gold price and you would probably get 3x the participation of bullion itself,” he noted.

Grosskopf sees silver catching up to gold in a major way due to its industrial and investment components.

“When gold moves, silver usually moves more, it is a smaller market. There is an industrial market for silver, which is a big percentage of the market. Conversely, the investment potion of silver is a very small portion of the market. But when gold is running, investment dollars flood into silver and squeeze it a lot quicker than gold,” he said.

“[Also], silver is mostly a byproduct of lead and zinc and if the economy is slowing and base metals prices are down, which is the case currently, a lot of those base metal mines slow down or cease production. So, all of a sudden, there is not as much silver being produced,” he added.

By Anna Golubova
For Kitco News

David

Volatility ramps up in gold as COVID-19 spreads

On Friday gold futures closed up in double digits with a net gain of over $20 on the day. This led to the only time we see gold prices gap extremely higher, or lower; the weekend. As gold reopened Monday morning in Australia it did so with a powerful upside move. After closing just above $1643 per ounce on Friday, gold prices opened at $1656 and then began a substantial, but short-lived rally, taking prices to $1691.70.

Obviously, this is the highest price gold has traded to this year. Even more significant though is the fact that you have to go back to February 2013 to see the last time gold had challenged $1700 an ounce, the current elusive brass ring.

As of 4:15 PM EST, Gold futures bases the most active April contract is up $13.40, or (+0.81%) and fixed at $1662.20. The dollar index is basically neutral today currently up +0.02% and pegged at 99.21. This indicates that the large increase in price was due completely to traders bidding the precious metal higher.

This spike occurred as the Dow Jones Industrial Average sold off sharply losing 1031.61 points and closing at 27,960.80. Essentially U.S. equities sustained losses greater than the gains achieved during 2020. On a technical basis the retracement of today’s move alone occurred at the 78% Fibonacci retracement level after the Dow gave up 3.56% of value today.

While the World Health Organization is currently acknowledging that the COVID -19 continues to spread to other countries, they are hesitant in relabeling this epidemic which occurred in China as a pandemic which would mean that it is spreading worldwide.

As reported in MarketWatch, “The World Health Organization (WHO) said Monday that the coronavirus that broke out in Wuhan, China, late last year is not a pandemic. WHO Director-General Dr. Tedros Adhanom Ghebreyesus said the virus, named COVID-19, is not spreading in an uncontained way. "What we are seeing are epidemics in different parts of the world," he told reporters on a conference call. The WHO said earlier there are now 79,407 cases of COVID-19 in 30 countries and 2,622 deaths. The rapid uptick in the number of COVID-19 cases in Iran, Italy, and South Korea over the weekend sent markets tumbling Monday over concerns that the outbreak would turn into a pandemic.”

However, there are those experts that gravely disagree with the forecast from the WHO. Today Yahoo! News reported that Harvard University epidemiologist Marc Lipsitch is predicting the coronavirus “will ultimately not be containable” and within a year, “will infect somewhere between 40 and 70 percent of humanity.”

Lipsitch does not believe the virus can be contained because it differs from viruses like SARS and MERS, in that infected individuals do not show symptoms for an extended period of time allowing them to infect others. In fact, according to the Atlantic epidemiologist Marc Lipsitch is not alone, and there is emerging consensus that the outbreak will eventually morph into a new seasonal disease which could one day turn the cold and flu season into the cold and flu and COVID-19 season.

If these predictions come into fruition, we could see an extended and major global impact on economic growth which would pressure global equities and be extremely bullish for the safe haven assets such as gold and bonds.

Wishing you as always, good trading,

 

By Gary Wagner
Contributing to kitco.com

David

Gold and palladium both have a historical week

This was truly an historical week for traders of the precious metals. Both gold and palladium made substantial and strong upside moves resulting in a all-time new record high for palladium, and gold reaching a seven-year high.

There are distinct differences in the rationale and reasons that these two metals had such strong gains. In the case of palladium, it is a simple issue which revolves around a growing demand, and a diminishing supply. A report published by Johnson Matthey, one of the largest refineries of precious metals worldwide stated that the deficit between production and demand for palladium will continue to grow, and widen in 2020. It is for that reason that we have seen palladium prices rise in a parabolic manner since July 2018. In fact, the low achieved on a monthly chart during July 2018 was just above $800 per troy ounce.

Currently palladium closed today at $2,614, after factoring in today’s gain of 1.56% or $40.10. On a monthly chart it has hit an all-time record high of $2,746, just $132 above today’s closing price. Based upon the information contained in the report by Johnson Matthey we could see palladium continue to rise in price.

The rationale is that both Europe and China have begun to implement higher standards in terms of emissions released from cars and trucks containing internal combustion engines. Palladium continues to be the most effective way to reduce hydrocarbons and nitrogen oxides which are byproducts of burning fossil fuels.

Palladium is one of the few precious metals that has a price dictated almost completely by supply versus demand. According to the Visual Capitalist, “The current price of palladium is driven by fundamental supply and demand issues, not investor speculation. Between 2012 and 2018, an accumulated deficit of five million ounces has placed pressures on readily available supplies of above-ground palladium.”

Gold also had a historical breakthrough when early this week it broke and closed well above the elusive and psychological level of $1600 per ounce. The reason behind this move is completely different than palladium’s reason.

With the coronavirus continuing to spread not only throughout China, but now slowly to other parts of the world. There is a genuine concern that this will lead to a global issue. Currently there is no vaccine or cure for this epidemic and although it has been primarily been affecting China, this week many other countries reported new cases of the disease.

Today the New York Times reported that the coronavirus outbreak deepened its toll on global business. It cited the fact that “The disruption of China’s manufacturing network, and slowdown of its economy, has rippled through to the airlines, automakers, tech companies and more.

Until this epidemic can be contained from spreading it will continue to have the potential to disrupt economies around the world. More than 76,000 cases have been reported worldwide, and although the vast majority are from China.
 

Wishing you as always, good trading,

 

By Gary Wagner

Contributing to kitco.com

David