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.

Increase ad revenue 50-250% with Ezoic

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

Financial markets and precious metals meltdown, as U.S. dollar trades higher

As of 4:00 PM EST the equities markets are closing for the day and still settling. Today’s market action can best be described as brutal, with all three major indices and the entire precious metals complex trading dramatically lower. Currently the Dow Jones industrial average is trading 510 points lower, and currently fixed at 27,147.24. The Dow was down well over 800 points before slightly recovering in the last couple hours of trading.

The Standard & Poor’s 500 and the NASDAQ composite also lost value today. The S&P 500 gave up 53 points (-1.59%) and is currently fixed at 3267.09. The NASDAQ composite traded lower on the day but sustained the smallest percentage drawdown of all three indices. Currently the tech heavy index is down 39 points and fixed at 10,754, this is a decline of approximately -0.36%.

The precious metals also sustained major drawdowns with gold, silver, platinum and palladium all trading lower today in the futures and spot markets. Gold futures basis the most active December contract is well off of its lows achieved earlier in trading today, but still sustained damage to the tune of a – 2.23% decline in value. December futures are currently fixed at $1918.30 which is a net decline of $43.70 on the day. However, in trading today gold actually went to an intraday low of $1885.40 before recovering and moving back above $1900 per ounce.

Dollar strength was only a small component of today’s massive decline in gold pricing. Spot gold is currently fixed at $1912, which is a net decline of $36.90 on the day. On closer inspection according to the KGX (Kitco Gold Index) only $11.30 is the direct result of dollar strength. The remaining decline of $25.60 was the result of traders and market participants bidding the precious yellow metal lower.

Platinum futures lost approximately -5 ½%, taking that precious metal to $886.60, after factoring in today’s decline of $51.90. Palladium futures lost -3 ½% in trading today, this resulted in a decline of $83.80 taking that precious metal to $2,297 per ounce.

The largest percentage drawdown for the precious metals occurred in silver futures, with the most active December contract trading – 8.38% lower on the day. After factoring in today’s decline of approximately $2.26 silver futures are currently fixed at $24.86. According to the KGX, spot silver lost $2.07 in trading today with dollar strength accounting for only $0.15 of todays losses, and the remaining drawdown of a $1.92, the direct result of selling pressure.

According to analysts and reported by Kitco News there were three basic factors which took the precious metals dramatically lower today. These factors were pandemic fears, U.S. dollar strength, and uncertainty about the upcoming presidential election in the United States. In an article penned by Neils Christensen, Editor of Kitco News, he said,

“A perfect storm is brewing that has pushed gold and equity markets down nearly 3% on the day, analysts said. The two markets are seeing their fortunes tied to stimulus measure expectations, which have significantly declined in the last few days.”

On a technical basis gold did sustain major chart damage as it traded and closed below the 50-day moving average for the first time since June of this year, when prices moved below the 50-day moving average for a total of two trading sessions.

The question gold and silver traders must ask is whether or not today’s dramatic selloff in both gold and silver are signaling lower pricing ahead? And whether today’s selloff will allow traders an opportunity to buy the dip? Considering that gold traded to an intraday low of $1,885, there were certainly market participants buying the dip at the intraday lows. With the 50-day moving average currently at $1,940, we would need to see gold rise by approximately 22 ½ dollars before prices would have moved back above the 50-day moving average.

 

 

By Gary Wagner

Contributing to kitco.com

 

 

David

Gold price begins the week in positive territory as analysts eye new U.S. election risk, dollar, and Fed speakers

The yellow metal is beginning the trading week holding above $1,950 an ounce as analysts eye new U.S. election risk, the U.S. dollar and a slate of Federal Reserve speakers.

Last week, gold was able to eke out a nearly 0.5% gain while largely trading in a range between $1,950 and $1,975 an ounce. This marked a second consecutive weekly gain since the end of July.

At the time of writing, spot gold was at $1,954.20, up 0.25% on the day.

“From a technical perspective, it is hard to get excited about gold at the moment as it continues to chop between $1,900 and $2,000, and it has not seen the extremes in a month. It is near the middle of the range,” said Bannockburn Global Forex chief market strategist Marc Chandler.

All eyes will be on the Federal Reserve speakers this week after the media embargo has been lifted.

“Brainard speaks Monday, followed by Evans and Barkin Tuesday. Chair Powell appears before the House Financial Services Panel with Treasury Secretary Mnuchin Tuesday, appears by himself before the House Panel on Covid-19 Wednesday, and appears with Mnuchin again before the Senate Banking Committee Thursday. Mester, Evans, Rosengren, Quarles, and Daly all speak Wednesday, followed by Bullard, Evans, and Barkin Thursday and then Williams Friday,” summarized said BBH Global Currency Strategy’s Win Thin and Ilan Solot.

New U.S. election risk in also on the table with the death of liberal Supreme Court Justice Ruth Bader Ginsburg on Friday.

“News of Judge Ginsburg’s passing is an incredibly important political factor in the US election, especially if we see the conservative Amy Coney Barrett getting the job,” Pepperstone head of research Chris Weston said on Sunday.

This biggest impact will likely be on risk assets, Weston added. “The markets may struggle to price this accordingly and cleanly understand whether this plays into a greater prospect for Trump, or simply brings out more votes for the Democrats as many of the more moderate swing voters change to prior allegiances,” he wrote.

The U.S. dollar is likely to remain under pressure this week, which should help gold remain well supported, according to some analysts.

“DXY traded Friday at the lowest level since September 10 and a break below the 92.478 area is needed to set up a test of the September 1 low near 91.746,” said Thin and Solot. “The weak dollar trend should continue this week as we remain negative on the dollar due to the now-familiar combination of an ultra-dovish Fed and softening U.S. economic data.”

The U.S. dollar index was last trading flat at 92.84, down 0.09% on the day.

A number of datasets this week could also have an impact on gold prices, especially the U.S. durable goods orders scheduled for Friday.

“Durable goods orders will be preliminary and anything modestly below expectations will likely mean the market will believe that the Fed will do more,” TD Securities head of global strategy Bart Melek told Kitco News on Friday.

Other reports to pay attention to is Tuesday's existing home sales, Wednesday's manufacturing PMI as well as Thursday's jobless claims and new home sales numbers.

Analysts have warned to keep close tabs on a potential rush to cash as the U.S. November election approaches.

“One of the primary catalysts of the metals market until we get a little closer to the election is going to be the equity market,” said Kitco Metals global trading director Peter Hug.

The valuation in the equity space is concerning considering the economy is still in the beginning stages of its recovery, Hug noted.

“When only 30%-40% of the economy is open of pre-COVID levels, the valuation is as if the economy is at full guns. Something is not balanced here and if the market takes a big hit, people might be moving into cash ahead of the election,” he said.

Also, the possibility that the November election of being contested is adding another layer of complexity, said Melek. “This is potentially very problematic," he explained. “Political uncertainty tends to benefit gold. But if we have a full rout liquidity crisis, it is not going to be good for anything. People will go back into cash.”

 

By Anna Golubova

For Kitco News

 

 

David