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Expect To See Gold's Best Days After The June Fed Meeting-State Street - Christensen

Expect To See Gold's Best Days After The June Fed Meeting-State Street - Christensen

Release Date:  Friday, June 1, 2018

Gold and Silver Prices

Gold prices remained above $1,300 this week from end of last week amid the tensions in Italy and possible trade wars but declined Friday and went just below $1,300 following upbeat U.S. jobs data.

"'Great job numbers, lower unemployment rate, increased labor participation rate and ISM [were] all putting more pressure on gold,' but the decline tapered off by late morning Friday, said Jeff Wright, executive vice president at GoldMining Inc.

"'I believe we are setting ourselves up for a relief rally in June'-a sell move in the U.S. dollar which will be supportive for gold, Wright said, adding that he expects gold to recover over next week or so to the $1,300 level and 'possibly build from there.'" ("Gold settles under $1,300 after upbeat U.S. jobs data," Myra P. Saefong, Market Watch, 06.01.18.)

Gold ended the week down $3.80, closing at $1,297.90. Silver ended the week down $0.09, closing at $16.42.

Expect To See Gold's Best Days After The June Fed Meeting-State Street - Christensen

Head of gold investments at State Streets expects gold to push back to $1,350 an ounce after the June Fed meeting on the 13th and reach between $1,350 and 1,400 in October or November.

"While gold could struggle around the $1,300 an ounce level for the next two weeks, the market's best days this year are still ahead, said one market analyst.

"In an interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that investors have to wait until after the Federal Reserve's monetary policy decision on June 13 before seeing gold regaining its lost ground and pushing back to $1,350 an ounce.

"He added that gold's recent drop to a five-month low, as prices pushed through critical support at $1,300 an ounce, was in part because of the impending interest rate decision. Gold's selloff ahead of an interest rate decision has been a well-documented pattern since December 2015, he said. Gold settled the week at $1,299.30 an ounce, down 0.74% from the previous week.

"'If you look at the gold market cumulatively since the Federal Reserve started normalizing interest rates in December 2015, the gold price is up almost 30%,' he said. 'I think that is more important directionally than what we've seen happen in the last week or two,' he said.

"After the June rate hike, the market is not expecting another move until October or November. In that time, Milling-Stanley said that he expects gold to regain its bounce and push back up to its established range between $1,350 and $1,400.

"'I would expect gold to rebound quiet well as soon as the Fed announcement is out of the way,' he said. 'This June move has been so well telegraphed that I don't think it will take long for the gold market to adjust.'

"Milling-Stanley, said that ultimately, interest rate are rising, but the Federal Reserve is in no hurry to increase its pace of normalization. The gold market will continue to benefit in a low real interest rate environment. 'The Fed has said that 2% inflation is not a ceiling, it a target and that will be good for gold,' he said.

"Milling-Stanley said that once the market has digested the Federal Reserve's next monetary policy decision, he expects geopolitical uncertainty to support gold. Not only do global investors have to deal with growing chaos in U.S. politics, but also mounting concerns surrounding Europe's economy and political stability.

"Milling-Stanley said that growing economic weakness in the European economy could support further strength in the U.S. dollar; however, he added that this isn't necessarily a major headwind for gold. 'From 2008 to 2012 gold and the U.S. dollar rose in tandem because of safe-haven buying,' he said. 'It is starting to look a little eerily like that period again right now. Confusion and disarray are dominating geopolitics.'

"Ultimately, Milling-Stanley said that although gold has fallen sharply from last April's highs, the market has not seen its best days of the year...'More and more people are becoming more conscious of the strategic benefits of holding a little bit of gold in their portfolios.'" ("Expect To See Gold's Best Days After The June Fed Meeting," Interview with head of gold investments at State Street, Kitco News, Neils Christensen, 06.01.18.) 

Gold To Soar To $1,360 After Fed's June Announcement, Says This Analyst - Golubova

The June Fed meeting and rising geopolitical tensions including in Italy and Spain, likely to rise gold prices according to Global Pro Traders CEO.

"Gold rally is on its way and the precious metal could shoot up to $1,360 in just three weeks, says one analyst, citing the upcoming Federal Reserve rate announcement in June. 'My belief that a rally to $1,360 or higher in gold within the next three weeks is based not on hope, but data,' Global Pro Traders CEO David Brady said in a Sprott Money's post published on Thursday. 'Signs that a significant gold rally is pending or has already begun.'

"Brady's analysis lists market fundamentals, positioning, sentiment, and technical outlook: 'Based on declining open interest, falling yields, a falling dollar and declining rate hike expectations, the data has only improved for gold,' he noted.

"One of the key things to watch in the next three weeks is a possible Federal Reserve rate hike on June 13. There's an 86.3% chance of a Fed rate hike at the upcoming FOMC meeting, according to the CME FedWatch Tool.

"In case of another rate hike, gold is likely to go up, said Brady, pointing to a recent trend.

"Gold has rallied after five of the last six rate hikes, and given the decline from $1,369 to $1,281 in recent weeks ahead of the next meeting, plus all the signals pointing north for Gold, this will once again likely be the catalyst for the next rally," Brady explained.

"There are also geopolitical tensions that are playing into the hands of the yellow metal, including Italy and Spain.

"Gold prices were trading largely flat on the day as Asian markets opened on Friday, with spot gold... last at $1,298.60, up 0.05% on the day..." ("Gold To Soar To $1,360," Anna Golubova, Kitco News, 05.31.18.)

Gold Prices rise on weaker US dollar, trade tensions - Rodrigues

Weaker dollar, risks in global financial system and geopolitical tensions are all big drivers for gold.

"Gold prices rose on Thursday, as the dollar eased from 6-1/2-month highs hit earlier this
week, with prices further supported by concerns over U.S.-China trade. Spot gold rose 0.4 percent to $1,305.87 per ounce by 0652 GMT, but was down 0.7 percent for the month, in what could be its second straight monthly decline.

"'Gold is largely being influenced by how the dollar is moving and the dollar move overnight is a clear representation of why gold prices have risen this morning,' said OCBC analyst Barnabas Gan.

"The dollar index, which measures the greenback against a basket of six major currencies, fell 0.3 percent to 93.873. It touched its highest since early November at 95.025 on Tuesday. A weaker dollar makes bullion cheaper for holders of other currencies.

"Prices are still very dependent on how risk aversion is playing up and the global news surrounding the U.S.-Sino trade tensions as well as the possibility of a North Korea summit, that uncertainty is a big driver for gold prices," Gan added.

"China said on Wednesday it was ready to fight back if Washington was looking for a trade war, days ahead of a planned visit by U.S. Commerce Secretary Wilbur Ross. 

"Meanwhile, U.S. and North Korean officials met in New York late on Wednesday in the first of two days of talks about the future of Pyongyang's nuclear weapons program and a possible summit between U.S. President Donald Trump and North Korean leader Kim Jung Un. 

"U.S. economic growth slowed slightly more than initially thought in the first quarter as consumer spending rose at its weakest pace in nearly five years. 

"However, tensions over Italy cooled as the country's two main anti-establishment parties renewed efforts to form a government, reducing the prospect of a general election, which
had stoked fears that such a vote will effectively be a referendum on the country's euro membership. 

"'An inherent weakness in the greenback, heightened risks in the global financial system and geopolitical uncertainty will cement safe-haven demand for the longer term,' Benjamin Lu, a commodities analyst at Singapore-based broker Phillip Futures, said in a note.'" (Gold prices rise on weaker dollar, trade tension," Karen Rodrigues, Reuters, 05.31.18.)

Here comes another global financial crisis... - Pethokoukis

Global financial crisis could be on the rise given the political crisis in Italy and possible trade war between the U.S and Europe and China.

"Is another global financial crisis on the horizon? Investors are increasingly worried that an escalating political crisis in Italy could lead to a populist, euroskeptic government taking power. As a result, there's rising uncertainty about whether the country might eventually abandon the euro currency zone or default on its giant debt pile. To make things worse, the Trump administration continues to toy with the idea of a trade war with Europe and China. That would be the last thing the global economy would need if the Italian situation deteriorates further. Debt crises and trade wars are a toxic combination.

"To fully understand the risk, it's helpful to recall that before there was a Brexit, there was the threat of Grexit. There was widespread concern a few years ago that Greece's government debt crisis would force it to exit the eurozone, and that such a shock departure would be a crushing blow to both the broader European economy, in the middle of recession, and the American economy, which was still recovering from its own downturn.

"These fears prompted what is perhaps the most amazing - albeit apocalyptic - research note ever published by a major Wall Street bank or investment firm. In December 2011, Citigroup clients were treated to dark speculation by the firm's chief economist, Willem Buiter, on what might happen if Greece's departure led to a daisy chain of eurozone exits and the eventual collapse of the European Union:

"A breakup of the euro area [currency zone] would be rather like the movie War of the Roses version of a divorce: disruptive, destructive, and without any winners. ... If Spain and Italy were to exit, there would be a collapse of systemically important financial institutions throughout the European Union and North America and years of global depression. ... Even if the breakup does not destroy the EU completely and does not represent a prelude to a return to the intra-European national and regional hostilities, including civil wars and wars, that were the bread and butter of European history between the fall of the Roman empire and the gradual emergence of the European Union from the ashes of two made-in-Europe world wars, the case for keeping the euro area show on the road would seem to be a strong one: financially, economically, and politically, including geopolitically. [Willem Buiter, Citigroup]

"Thankfully, the worst didn't happen. Europe muddled through thanks to a combination of Greek debt bailouts and massive money printing by the European Central Bank. But Italy poses a far bigger threat than Greece ever did.
"Italy is the eurozone's third-largest economy, 10 times the size of Greece's. It also has the world's third-largest sovereign debt market, some $2.7 trillion. Only Greece has a higher public debt-to-GDP ratio in the eurozone. My AEI colleague Desmond Lachman, a former International Monetary Fund official and Wall Street emerging market strategist, argues that Italy's troubles have the potential to roil the global economy much like the 2008 Lehman bankruptcy...America wouldn't be spared.

"... America is deeply and irreversibly enmeshed in the global economy through linkages we probably don't fully understand, as the original global financial crisis of 2008 showed.

"Italy is a mess. It's too big to fail, but also too big to bail out. To a large extent, it will need to save itself though economic reforms that boost its lagging productivity and reduce its debt load as a share of the economy. And America cannot simply sit idly by and pretend that this is not our problem.

"Unfortunately, the Italian populists - much like America's - are promising a budget-busting economic fantasy if elected, including a universal minimum income guaranteed to all citizens and a flat income tax. Such a large dose of debt-financed fiscal stimulus, Goldman Sachs warns, threatens the nation's debt rating, the nation's banking system, support from the European Central Bank, and "could eventually call into question Italy's participation in the euro area [with] possible spillovers to other countries."

"Italy must get its financial house in order. But America also has a role to play, such as avoiding trade disputes with Europe or China that will exacerbate market tension and potentially weaken global growth. There is little evidence that any of the trade actions currently being contemplated by Team Trump would have much impact on economic or job growth. But a second global financial crisis surely would." ("Here comes another global financial crisis..." James Pethokoukis, The Week, 05.31.18.)

George Soros is worried that another financial crisis - La Monica

Legendary billionaire investor George Soros is worried that a major financial crisis is around the corner citing the crisis in Europe and the termination of the Iran deal as a couple of reasons.

"Soros, speaking at the annual meeting of the European Council on Foreign Relations in Paris Tuesday, said that rising anti-European Union sentiment, the disruption to the Iran deal, a soaring dollar and investors taking money out of emerging markets are adding up to bad news for the global economy.

"'We may be heading for another major financial crisis,' he said. Soros said that the rise of populism in Europe is a significant problem.

"'The European Union is in an existential crisis. Everything that could go wrong has gone wrong,' Soros said in his prepared remarks.

"And he lamented the fact that since 2008, the European Union's austerity programs helped lead to the euro crisis. And that gave rise to anti-EU movements that are partly responsible for Brexit and the recent political turmoil in Italy.

"Soros argued that the refugee crisis in Europe, 'territorial disintegrations as exemplified by Brexit' and austerity are the three biggest challenges facing Europe. He warned that the Brexit 'divorce will be a long process, probably taking more than five years.'

"But Soros is also worried about the fact that there is a growing divide between Europe and the United States with regards to Iran.

"Soros said President Trump's decision to unilaterally withdraw from the nuclear arms treaty with Iran is 'effectively destroying the transatlantic alliance...

"'This development will put additional pressure of unpredictable force on an already beleaguered Europe. It is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality,' he added.

"Soros predicts that the termination of the deal with Iran 'is bound to have a negative effect on the European economy and cause other dislocations' and noted that 'the strength of the dollar is already precipitating a flight from emerging market currencies.'

And he continued to stress that "the economic case for remaining a member of the EU is strong, but it will take time for it to sink in" and added that the EU "needs to transform itself into an association that countries like Britain would want to join."

"Soros is right. And that's clearly why the market was worried Tuesday.

"The speech comes on a day when global financial markets were reeling because of concerns about the future of the EU after this past weekend's elections in Italy. Populists failed to form a government, which means that new elections will need to be held.

"Europe has already dealt with Brexit. Now, Italexit is starting to once again trend on social media. And that's not a good sign." ("George Soros is worried about another financial crisis," Paul R. La Monica, CNN, 05.29.18.)