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It’s Time For The Fear Trade To Move Gold Prices – Forbes

It’s Time For The Fear Trade To Move Gold Prices – Forbes

Release Date:  Friday, January 12, 2018

"Gold rose to a four-month high on Friday and was on track for a fifth straight weekly gain as the dollar fell against the euro on an agreement for a political coalition in Germany.

"Spot gold rose 0.7 percent to $1,331.62 an ounce by 1102 GMT, having touched its highest since Sept. 15 at $1,333.02. The precious metal is up 0.9 percent this week and set for its longest run of weekly gains since April." (“Gold price hits four-month high as dollar slumps.” Arab News 01.12.18)

"Gold has seen its 'biggest start to a month since the U.S. presidential election in November 2016,' said Adrian Ash, director of research at BullionVault. Gold futures have climbed roughly 1.1% month to date.

“'It’s always common to see a New Year bump in new private-investors demand for gold,' he said. 'January sees people rebalance and rethink risk, and that’s driving both precious metals prices and investor interest to show a marked rise at the start of the year.'” (“Gold prices mark the highest settlement since mid-September." Market Watch 01.11.18)

It’s Time For The Fear Trade To Move Gold Prices – Forbes
We can thank the Fear Trade, drive by low to negative real interest rates, for much of gold’s performance last year.

"The price of gold and gold mining stocks were very competitive in 2017. The yellow metal ended the year up a little more than 13% — its best year since 2010 — while gold stocks, as measured by the NYSE Arca Gold Miners Index, gained more than 11%. All of this occurred even as large-cap stocks regularly closed at all-time highs and cryptocurrencies invited massive speculation.

"I believe these forces will only intensify in 2018. With inflation finally showing green shoots and President Donald Trump’s $1.5 trillion tax reform law expected to increase deficit spending, this year could provide the right conditions to spur gold prices higher.

"Since the Fed lifted rates last month, gold has behaved just as it did following the last two December rate hikes—that is, it’s begun to appreciate. On the final trading day of 2017, gold broke above $1,300 an ounce, a psychologically important level, and has since climbed an additional 1%. This is the first year since 2013, in fact, that gold has started the year above $1,300.

"So will we see a 'Fed rally' in 2018 as well? Obviously nothing is guaranteed, but let’s say gold were to follow a similar trajectory this year as it did in 2016 and 2017. That would put gold somewhere between $1,460 and $1,600 an ounce by summer. These are prices we haven’t seen in four years…

"Another factor that’s driven gold prices in the past is inflation. When the cost of living has eaten away at government bond yields, investors have tended to seek more attractive stores of value, including gold. This is at the heart of gold’s Fear Trade.

"The problem is that inflation has been sluggish lately — if we’re using the official consumer price index (CPI). In 2017, the CPI just barely met the Fed’s 2% target rate. Many economists had expected prices to start creeping up last year in response to President Trump’s nationalist 'America first' agenda, complete with new tariffs, strong crackdown on illegal immigration, cancellation of U.S. participation in the Trans-Pacific Partnership (TPP) and a renegotiation of the North American Free Trade Agreement (NAFTA). So far these policies haven’t had much effect on inflation.

"The underlying inflation gauge (UIG), however, tells a different story. The UIG, introduced only last year by the New York Fed, is a much broader measure of inflation than the CPI. It includes not just consumer prices but also producer prices, commodity prices and financial asset prices.

"When we use this dataset, we find that — surprise! — inflation is not as subdued as we initially thought. Whereas the November CPI came in at 2.2%, the UIG heated up to 3%, its highest reading since August 2006.

"The implications here are huge. Three percent is higher than the five-year Treasury yield, currently around 2.3%, and the 10-year yield, about 2.5%. It’s even higher than the 30-year Treasury yield at 2.8%!

“'In general terms… methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.'

"So which metric do you believe? The official CPI? The 1980-based CPI? The broader UIG? If it’s one of the last two, you have to ask yourself why you would lock your money up for five years, 10 years or even 30 years in a government bond that fails to keep up with real inflation. The investment case for gold suddenly becomes very attractive.”(“It’s Time For The Fear Trade To Move Gold Prices.” Forbes 01.08.18)

A 10 to 15% Stock Market Correction Is Virtually Unavoidable, Blackstone’s Byron Wien Warns - CNBC
2018 may be pointing to another monster year for gains, but Byron Wien believes the rally is in a danger zone.

"’Sentiment is bordering on the euphoric state. When investors think they can't get into trouble, they usually do,’ Wien said Wednesday on CNBC's ‘Trading Nation’.’ ‘We're vulnerable to a correction.’

“Wien's comments came as stocks failed to extend their six-day win streak. TheDOW, S&P 500 and Nasdaq all closed lower for the first time this year. Bond yields set another round of multiyear highs — which could indicate inflation could emerge as a headwind.

"’The market needs to have some kind of correction. There are some excesses in it. So I fully expect it to happen,’ he said.

“But Wien, who detects frothiness among technology stocks in particular, predicts the markets would recover quickly.

"’The year will end higher than it started no matter what happens along the way,’ he said, adding that he'd ‘absolutely buy’ stocks on a correction because underlying fundamentals remain strong.

“Ultimately, he sees the S&P 500 in 2018 ending 9 percent higher than current levels as long as the 10-year Treasury yield stays below 3 percent.

For now, Wien is shifting his investment strategy to the overseas markets.

"’India is still attractive. I think Japan is still attractive,’ Wien said.”(“A 10 to 15% stock market correction is virtually unavoidable, Blackstone’s Byron Wien warns.” CNBC 01.11.18)