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Commodities Now: All Roads Lead to Gold? - Kim

Commodities Now: All Roads Lead to Gold? - Kim

Release Date:  Friday, April 27, 2018

Gold and Silver Prices 

Gold rose slightly on Friday but closed down for its second consecutive week after rising yields and Korean leaders met for a peace treaty.

"Gains for the yellow metal came even as a leading dollar measure also rose, with a pullback in the yield for the benchmark 10-year Treasury giving the commodity, which doesn't offer a yield, some ground to rise.

"Geopolitics remain in focus for the haven metals market after a historic meeting between North Korean leader Kim Jong Un and South Korean President Moon Jae-in…The outcome of that gathering could lay the groundwork for Kim's planned meeting with U.S. President Donald Trump." ("Gold notches a slight gain, but rising yields drive bullion to weekly drop," Mark Decambre, MarketWatch, 04.27.18.)

Gold ended the week down $12.10, closing at $1,324.10. Silver ended the week down $0.585, closing at $16.55.

DoubleLine's Gundlach says U.S. Treasuries 'not attractive' - Ablan

Gold headed for an explosive move according to DoubleLine capital CEO, Gundlach.

"Jeffrey Gundlach, chief executive officer of DoubleLine Capital, said on Tuesday that U.S. Treasuries were "not attractive" even though the 10-year yield US10YT=RR, a benchmark for global borrowing costs, crossed the critical 3 percent threshold earlier in the day.

"Gundlach, who oversees more than $119 billion in assets and spoke at a New York event for DoubleLine clients, said the core Consumer Price Index and the New York Federal Reserve Underlying Inflation Gauge suggest U.S. inflation will go higher, which can hurt prices of government bonds.

"Gundlach said the Fed's "quantitative tightening" was a factor in rising Treasury yields. The uptrend in yields will continue as foreigners will be averse to purchasing U.S. bonds because of hedging costs, he said.

"Gundlach said gold prices, which have broken their downtrend line, were on the verge of breaking out to the upside. 'It's getting almost exciting ... something big is happening,' he said.

"'Gold is maintaining an upward pattern above its rising 200-day moving average, which is extremely good,' he added.

"Based on classic chart reading, Gundlach said an 'explosive, potential energy' of a huge 'head-and-shoulders bottom' base was signaling a move of $1,000 in gold prices.

"'I'm not predicting it ... I'm letting the market prove itself,' he said.

"For its part, the Fed, under new chairman Jerome Powell, will be less sensitive to market movements, Gundlach said, adding he does not think Powell will intervene in financial markets.

"'The Fed is not going to bail out the market - unless there is a big problem,' he said"… ("DoubleLine's Gundlach says U.S. Treasuries 'not attractive,'" Jennifer Ablan, Reuters, 04.24.18.)

Commodities Now: All Roads Lead to Gold? - Kim

Gold looks promising with late-cycle dynamics and a weaker dollar

"All signs point to gold. The safe haven metal took a hit as bond rates jumped in the fourth-quarter of 2016, but has been trending higher despite the rise in real interest rates. Gold bulls should take note of how gold prices have behaved in relation to long-term treasury bonds because they appear to be behaving differently than they have in the past.

"On Thursday, the dollar's strength weighed on gold prices. Gold spot futures declined 0.3% to about $1,318 per troy ounce…Meanwhile U.S. government debt yields fell as fresh buying pushed rates to under 3% Thursday morning.

"'There is a confluence of factors at play behind this apparent decoupling,' wrote Konstantinos Venetis of TS Lombard. 'U.S. inflation breakeven rates have been rising in tandem with oil prices, and gold tends to have a tight positive correlation with moves in inflation expectations.'

"After the Great Financial Crisis, the two big exceptions were in the lead-up to the Brexit vote and in the aftermath of President Donald Trump's election. In the former case, gold rose even as inflation expectations declined with bond yields; in the latter case, the opposite occurred.

"Gold's outlook looks rosy. The precious metal should benefit from late-cycle dynamics, which tend to favor real assets over stocks. A weaker dollar could help too and Venetis said what appears to be in the works today is the opposite of what happened following the 2013 taper tantrum:

"'Back then, the currencies of current account-deficit emerging markets came under pressure as the dollar strengthened from a low point, deflationary headwinds spread and commodity prices suffered. Now, the currencies of large current account-surplus developed markets are appreciating as the dollar retreats from lofty levels, inflation picks up speed and commodity prices increase.'

"He isn't the only one bullish on gold. The commodity team at Goldman Sachs is betting that rising emerging-market wealth combined with geopolitical and trade war concerns will push haven prices higher." ("Commodities Now: All Roads Lead to Gold?" Crystal Kim, Barron's, 04.26.18.)

Ignore Gold's Shot-Term Momentum and Play The Long-Term Trend-State Street Global Advisors - Kitco News

Gold will benefit from falling equity and bond markets along with a weakened dollar.

"The U.S. Dollar has pushed to its highest level since mid-January, which has driven gold prices to a one-month low, but one gold market analyst said that it is essential for investors to pay attention to the long-term trend.

"George Milling-Stanley, head of gold investments at State Street Global Advisors, the marketing agent of the largest gold-backed exchange traded fund, SPDR Gold Shares (NYSE: GLD), said that the U.S. dollar has been in an 18-month downtrend and still has a long way to go to signal a significant momentum shift.

"At the same time, gold prices have been in an uptrend since late 2015 and the rally has only accelerated…

"'Gold investors are paying a lot more attention to long-term trends than this short-term momentum,' he said. 'Investors are a lot more interested in diversifying into safe-liquid assets and gold is the first real liquid asset."

"Not only has gold benefited from a downtrend in the U.S. dollar, but Milling-Stanley said that falling equity and bond markets also make gold an attractive investment. Milling-Stanley's comments come as the U.S. 10-year bond yields pushed above 3% for the first time since 2014. Bond yields run inversely to prices.

"'Investors are asking themselves where do they go when both bond and equity markets are falling. Gold is the only asset left and that is what investors are starting to recognize' said Milling-Stanley. 'Nobody is about how great equities are going to be this year. They are all asking themselves how bad it is going to get.'

"With the current market conditions, Milling-Stanley reiterated his call that gold prices will eventually push past $1,400 before the end of the year.

"He added that he is not expecting to see a significant quiet period for gold this year. Geopolitical uncertainty and further weakness in equity markets should continue to support gold prices through the summer months.

"'I think this year when people start to sell in May they are going to start taking more defensive positions and that will support gold prices,' he said." ("Ignore Gold's Shot-Term Momentum and Play The Long Term Trend - State Street Global Advisors," Interview- Kitco News, 04.26.18.)

Stock Funds Suffering Big Outflows as Rattled Investors Rush - Loder

Investors are leaving the stock market more rapidly and inflation is feared.  

"Investors are dumping U.S. stock funds at one of the fastest paces in a decade as rising market turbulence erodes confidence in the nine-year-old bull market.

"U.S. equity mutual funds and exchange-traded funds recorded $2.4 billion in outflows for the week ended April 18, according to the Investment Company Institute. That followed $41 billion in outflows from these funds in February—the biggest monthly exodus since January 2008, ICI data show. Overall, investors have yanked $67 billion out of these stock funds since the start of February.
"That rush for the exits marked a sharp reversal from January, when investors poured $10.8 billion into U.S. equity funds, helping propel major indexes to records.
"'Suddenly it's changed, and everyone is trying to get out of the crowded theater first," said Darren Pollock, a portfolio manager for Cheviot Value Management, a Beverly Hills asset manager. "There was an opportunity to lock in gains from what had been such a strong rally, then step aside and see what happens next.'
"…the flood of cash leaving stock funds marks a shift from the buy-the-dip mentality that characterized much of last year.
"Back then, markets were calmer, and nearly every decline was seized as an opportunity for bargain buying. Solid corporate earnings, the slow advance of interest rates and a pickup in global growth forecasts gave stocks an added boost.
"But that benign backdrop for stocks began to crumble this year amid signs that the economic expansion is driving up prices of goods and services. Inflation has become the biggest hazard for the aging bull market…The S&P 500 stock index has fallen 7.2% from the all-time high reached in January.
"The recent market tumult shows how inflation has made a liability out of good news, such as wage gains and a strengthening economy, since it could prompt the Federal Reserve to accelerate interest-rate increases. The prospect of rising rates has weakened a key justification for the sky-high corporate valuations, and has made stocks less appealing by offering higher returns on risk-free savings.
"Inflation fears got an added jolt this week as oil prices rose to a three-year high and the yield on the 10-year U.S. Treasury note topped 3% for the first time since 2014.
"'A lot of investors are really primed to see inflation coming in, and that freaks them out,' said Megan Greene, chief economist at Manulife Asset Management. It is the biggest concern she hears from the firm's clients.
"Rising volatility also has made investors skittish as markets have been whipsawed by the threat of a trade war, political upheaval and a technology-stock rout"…("Stock Funds Suffering Big Outflows as Rattled Investors Rush to the Exits," Asjylyn Loder, The Wall Street Journal, 04.27.18.)