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Goldman expects commodities to rebound next year, says oil and gold prices are 'extremely attractive'

Goldman expects commodities to rebound next year, says oil and gold prices are 'extremely attractive'

Release Date:  Friday, December 7, 2018


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Gold and Silver Prices

Gold had its second monthly gain in a row even though it closed lower on Friday causing the metal to close lower for the week as the dollar gained momentum awaiting the G20 summit meeting between President Trump and China's President Xi.

"Trump and Xi are expected to discuss trade on the sidelines of the G20 summit on Saturday in Argentina, where global trade tensions are expected to dominate the agenda.

"'There is caution ahead of the G20 meeting between Trump and Xi, a little bit of nervousness about placing fresh positions ahead of their discussion, where the outcome is pretty much uncertain,' said Capital Economics analyst Ross Strachan.

"The dollar was slightly firmer as markets awaited the outcome of the talks.

"'Gold has been quite stable so far, which reflects the relative stability we're seeing in the dollar ahead of the G20 summit. How gold responds will depend on the message conveyed by the two Presidents,' said Craig Erlam, an analyst at OANDA.

"'A break above $1,240 would indicate some encouraging progress in talks and take out key upside resistance, with the next notable level being $1,260.'

"Bullion was on track to post a second straight monthly gain, up about 0.6 percent.

"'The setup for gold is getting better and better, particularly due to the uncertain economic outlook due to the Trump presidency, and gold looks set for a strong 2019,' Mark O'Byrne, research director of Dublin-based gold dealer GoldCore, said." ("Gold slips as dollar drifts higher ahead of Trump-Xi meeting," Reuters, CNBC, 11/30/18.)

Gold ended the week down $0.60, closing at $1,222.10. Silver ended the week down $0.11, closing at $14.15.

Goldman expects commodities to rebound next year, says oil and gold prices are 'extremely attractive' - Meredith

The G20 summit meeting could potentially result in great surge for both oil and gold next year.

"Goldman Sachs said Monday commodities could surge around 17 percent over the coming months, with a fast-approaching G-20 meeting cited as a potential launchpad for raw materials.

"So far this month, oil prices have collapsed on intensifying oversupply concerns, metals have fallen amid worries over slowing economic growth and investors continue to fret about the ongoing trade war between the world's two largest economies.

"'Given the size of dislocations in commodity pricing relative to fundamentals with oil now having joined metals in pricing below cost support, we believe commodities offer an extremely attractive entry point for longs in oil, gold and base,' Analysts at Goldman Sachs said in a research report published Monday.

'Greater clarity on a potential OPEC cut'

"At the end of the week, President Donald Trump and Chinese premier Xi Jinping are expected to meet on the side-lines of a G-20 summit in Argentina. The meeting offers a chance for the two global leaders to address their trade dispute, while Russia's Vladimir Putin will have an opportunity to discuss crude policy with Saudi Arabia's Crown Prince Mohammed bin Salman.

"'Many of the political uncertainties weighing on commodity markets have a significant chance of being addressed in Buenos Aires,' Analysts, including Jeffrey Currie, said in the report.

"'This includes some improvement on the China-U.S. relationship and like in the 2016 G-20 meetings, some greater clarity on a potential OPEC cut,' they added.

"Oil prices rose on Monday, paring some of the dramatic losses sustained in the previous session, but lingering concerns about an increase in global supply and a slowdown in economic growth limited gains.

On Friday, crude futures tumbled almost 7 percent, falling to their lowest levels in more than a year. The declines have ramped up the pressure on OPEC ahead of a much-anticipated meeting between the influential oil cartel and its allies in Vienna on Dec.6.

"The Middle East-dominated group is expected to announce that output will be curtailed, though the prospect of a fresh round of supply cuts has done little to prop up prices in recent weeks.


"Meanwhile, gold prices rose slightly on Monday, as the U.S. dollar weakened and the future course for Britain's departure from the European Union provided support for the yellow metal.

"'If U.S. growth slows down next year, as expected, gold would benefit from higher demand for defensive assets,' Goldman said in the note.

"The U.S. bank said market participants had already priced in 10 out of the 12 interest rate hikes it expects from the Federal Reserve, adding there may well be additional support in the form of central bank buying.

"Spot gold was up around 0.3 percent to $1,225.89 per ounce at around 1 p.m..." (Goldman expects commodities to rebound next year, says oil and gold prices are 'extremely attractive,' Sam Meredith, CNBC, 11/26/18.)

Gold advances as Powell hints at milder rate hike policy - Reuters

Gold rose after Powell's speech on Wednesday as it's traditionally used as a safe haven during political and economic uncertainty.

"Gold rose for a second session on Thursday, scaling a one-week peak, buoyed by expectations of a toned down approach to the Federal Reserve's aggressive monetary tightening cycle.

"Spot gold rose 0.43 percent to $1,226.24 per ounce, having earlier hit its highest since Nov. 23 at $1,228.07

"'Gold is benefiting from Fed Chair Jerome Powell's speech yesterday; so it appears the Fed is close to ending its interest rate hike cycle, giving gold a significant boost,' said Phil Streible, senior commodities strategist at RJO Futures in Chicago.

"'Geopolitical risk between Russia and Ukraine is going to cause investors to move into the gold market as well. We could see another conflict arise, a much more aggressive one than what we saw previously with Crimea.' Days after Russia seized Ukrainian vessels and their crews near Crimea, the Ukrainian region which Moscow annexed in 2014, German Chancellor Angela Merkel said the West was imposing sanctions on Russia to stand up for international law.

"Gold is traditionally used as a safe investment during economic and political uncertainty.

"Investors are now awaiting the release of the minutes of the U.S. central bank's November meeting for further clarity on the Fed's monetary tightening path.

"Gold jumped on Wednesday after Powell said the central bank's policy rate is now 'just below' estimates of a level that neither brakes nor boosts a healthy U.S. economy.

"'That weakened the dollar and at the same time lowered expectations of rate increases for the next couple of years ... I believe that's what gave the biggest impetus for gold,' said Jeff Klearman, portfolio manager at GraniteShares.

"'Along with that, you have the G20. There seem to be expectations of a favorable trade agreement or some sort of agreement with China, which could result in a weaker dollar. So, a combination of these factors have been helping gold prices.'

"China is hoping for "positive results" in resolving the trade war with the United States at the G20 summit in Argentina, the commerce ministry said on Thursday, ahead of a closely watched meeting of Chinese and U.S. leaders." ("Gold advances as Powell hints at milder rate hike policy," Reuters, CNBC, 11/29/30.)

Europeans See More Value In Gold Compared To North Americans- McEwen - Christensen

The ongoing issues and potential crisis in Europe make Europeans more understanding of gold's role as a safe haven.

"Although North Americans have cooled on precious metals and the mining sector, Europe remains an open and attractive marketplace, according to one mining executive.

"Rob McEwen, chairman of McEwen Mining (NYSE: MUX, TSX: MUX), returned from the Swiss Mining Institute European mining conference in Zurich, Switzerland and in a telephone interview with Kitco News saw a stark contrast between European and North American interest in precious metals.

"'Europeans appear to know the value of gold and are open to investment ideas,' he said. 'Toronto fund managers continue to liquidate their positions and appear to be disillusioned with the mining sector,' he said.

"McEwen said that it is not surprising that Europeans have a higher affinity for gold because the region has experience one issue after another since the 2008 financial crisis. In particular, Europeans continues to deal with the ongoing problems surrounding the United Kingdom's exit from the European Union to a renewed debt crisis in Italy.

"'Europeans have been so much closer to crises that they understand gold's role as a safe haven much better than North American investors,' said McEwen.

"Along with being more active in the precious metals market, McEwen said that sentiment is also more positive in Europe compared to North American.

"'The people I talked to in Zurich have been investing in gold for a long time and they feel that the market is at a turning point in the market,' he said. "They appear to be coming to the market a little earlier than North Americans.

"... International Investment firm Legg Mason recently released the results of its annual Global Investment Survey. The survey shows that 24% of European investors surveyed are more optimistic on gold in the next 12 months... Only 18% of U.S. investors surveyed see gold shining next year...

"In a country-by-country breakdown, Swiss investors are the most optimistic on gold with 29% surveyed seeing the asset as the best opportunity next year... Among German investors, 27% think gold will be the best investment next year...

"U.K. investors, faced with a messy Brexit next year, are also more optimistic on gold with 25% of investors bullish on the yellow metal..." ("Europeans See More Value In Gold Compared To North Americans- McEwen," Neils Christensen, Kitco News, 11/29/18.)

US 'could be entering Cold War with China' over trade, Yale economist warns - Meredith

Trade tensions between the US and China will be dominating the G20 summit and it's result is unclear.

"The U.S. and China could be in the early stages of a Cold War, veteran economist Stephen Roach told CNBC Friday, warning the global trade dispute is likely last for a 'long, long time.'

"His comments come ahead of a high-stakes meeting between President Donald Trump and Chinese premier Xi Jinping this week, as world leaders gather at the G-20 summit in Argentina.

"Simmering trade tensions between the world's two largest economies are expected to dominate the summit's agenda...'I think the end game is that this is a clash between two systems. And the U.S. is objecting to a state-sponsored "market-based socialist system" that uses the largess of the state to subsidize industrial policy,' Roach, senior fellow at Yale University and former chairman of Morgan Stanley Asia, told CNBC's "Squawk Box Europe" Friday.

"'Even though, America has had industrial policy for decades but implements it through the military industrial complex orchestrated by the Pentagon. Japan does it, Germany does it, we are making it sound like China is the only one that does it,' he added.

Mixed signals

"Trump initially triggered the trade conflict with Beijing earlier this year, accusing the Asian giant of "unfair" trade practices and intellectual property theft.

"The U.S. has imposed a total of $250 billion worth of tariffs against Chinese goods since July, prompting China to retaliate with charges on $110 billion worth of U.S. products.

"In October, Vice President Mike Pence said in a speech that China was guilty of 'predatory' economic practices. He provided no evidence for his claims.

"Pence also warned the U.S. could more than double the number of tariffs imposed against China over the coming months, saying the American people "deserved to know" Beijing had been orchestrating a campaign to undermine the Trump administration.

"'What Mike Pence said is that these are going to be longstanding issues and that raises the possibility - echoed by a speech that (Former U.S. Treasury Secretary) Hank Paulson gave a couple of weeks ago - that we could be entering a Cold War with China that would last for a long, long time,' Roach said Friday.

"Earlier this month, the U.S. president suggested his administration could soon strike a deal with China. This elevated hopes among many investors that global trade tensions could soon be defused.

"However, Trump appeared to pour cold water on the prospects of a trade deal this weekend, saying Thursday that while an agreement was close he was not sure whether he wanted one." ("US 'could be entering Cold War with China' over trade, Yale economist warns," Sam Meredith, CNBC, 11/30/18.)