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Why it may be downhill from here for the U.S. dollar - Tappe

Why it may be downhill from here for the U.S. dollar - Tappe

Release Date:  Friday, May 18, 2018

Gold and Silver Prices

Gold price suffered a great weekly drop due to higher dollar and no reaction to geopolitical tensions but closed slightly higher on Friday.

"'The strength of the dollar index and the subdued reaction to the geopolitical tensions by investors are the reasons behind the move," *Aslam said. "Failure of the U.S. to reach any trade deal with China, as [President] Trump has already indicated that there may not be a favorable outcome, could stimulate some demand for gold. Investors would seek safe haven due to a full blown trade war.'" ("Gold ekes out a daily gain but suffers worst weekly drop of 2018, Myra P. Saefong and Rachel Koning Beals, Market Watch, 05.18.18.)
*Naeem Aslam, analyst with Think Markets.

Gold ended the week down $26.60, closing at $1,291.70. Silver ended the week down $0.235, closing at $16.465.

Why it may be downhill from here for the U.S. dollar - Tappe

It may be the end of the dollar rally and its moving pace may be subsiding.

"The U.S. dollar snapped its winning streak last week, slipping for the first time since its resurgence begun in April, leading some prominent analysts to declare the end of this newfound buck bounce.

"'The market has hit the pause button on the dollar rally. This fits with our view that the recent surge was rooted in positioning and a reduction in the buck's risk premium,' said Mark McCormick, North American head of FX strategy at TD Securities.

"The U.S. dollar fell against all of its rivals in 2017 and began the current calendar year on the back foot. In April, however, it surged, notching three consecutive weekly gains. But some skeptics see that run-up as ephemeral, attributing those gains to the unwinding of bearish bets that the U.S. unit would continue to fall rather than a rise pegged to a fundamental change the outlook for the dollar.

"The ICE U.S. Dollar Index DXY, +0.17% a gauge of the greenback against six rivals, was little changed but in the green on Monday at 92.577. So far this year, the gauge is up 0.5%, over the past 12 months, however, it's down 6.7%, FactSet data show. In April, the index rallied 1.9%, marking its best month since the presidential election in November 2016.

"It seems, the previous mispricing of the dollar had been unwound over the April and early May period, said McCormick. He concludes that "the pace of the dollar move is likely to subside from here."

"Some currency strategists maintain an even more bearish outlook for greenback.

"'The dollar has entered a secular bear market, which we think is likely to remain in place for some time,' wrote Morgan Stanley strategists led by Hans W. Redeker in the bank's midyear estimate for global currency markets.

"Redeker says that a list of factors that should have also served as supportive for the buck can't accurately be cited as the cause of its strength-or weakness.

"Those include U.S. Treasury yields rising, with the 10-year bond above 3% for the first time in four years back in April and testing those levels on Monday. As bond yields are an indicator for interest-rate expectations, market participants forecasting three to four rate increases by the Federal Reserve this year took the opportunity have shifter their expectations to the upper end of that range. And higher interest rates drive the local currency higher. The Fed's dot-plot, representing a graph of the outlook for interest rates from Fed members, last showed three rate increases for the year 2018, including one completed in March. On top of that, U.S. economic data have been solid, spurring further hope of a more aggressive U.S. central bank, which should, in theory, guide the dollar higher. All these themes remain in place, even as the buck has dipped over the past several days, Redeker said.

"Therefore, he concludes that the big anchor that has consistently been weighing on the U.S. dollar is persistent fears about a growing deficit.

"'Rising U.S. twin deficits," describing the budget and trade deficits, "may initially support U.S. growth and allow the U.S. to fund its deficit via higher returns on dollar-denominated assets, as we have seen in the dollar rally since February,' the Morgan Stanley strategists said.

"Barring a pickup in productivity, 'a persistent dollar rally is unlikely as the twin deficits crowd out private investment by raising borrowing costs,' the Morgan Stanley analyst added.

"Meanwhile, global liquidity is tightening too and this means the U.S. will have to compete for foreign investment flows. One way to do that would be to raise interest rates to make dollar-denominated assets more attractive, Redeker suggested, which to some degree is already happening...the other, and possibly more likely option, way to compete with foreign investment flows would be to weaken the dollar and give foreign investors more bang for their buck, Redeker & Co. writes." ("Why it may be downhill from here for the U.S. dollar," Anneken Tappe, Market Watch, 05.14.18.)

'We Found It All': Goldcorp Says Mining Reached 'Peak Gold'; Prices to Hit $1,600- Golubova

Ian Telfer, Goldcorp chairman, sees gold reach $1500-1600 by the end of this year.

"All major gold deposits have already been found, said Goldcorp chairman Ian Telfer, adding that mining production can only go downhill from here.

"'We're right at peak gold here,' Tefler told the Financial Post on Wednesday. "Gold produced from mines has gone up pretty steadily for 40 years. [But], this year [or next] it will start to go down, or it's already going down.'

"The dwindling production will boost gold's prices in the long-run, according to Telfer, who is very bullish on gold despite a recent drop below $1,300 an ounce - a very critical resistance level for the precious metal.

"Telfer said he sees gold prices heading all the way up to $1,500 or $1,600 an ounce by the end of this year.

"Gold prices tumbled more than 2% on Tuesday, hitting this year's lowest levels on strengthening U.S. dollar index that climbed to a five-month high. As Asian markets opened on Thursday, spot gold on was last trading at $1,291.10, up 0.07% on the day...

"The argument of peak gold has been gaining support within the mining industry. The World Gold Council (WGC) said in September that annual global gold production will not be able to exceed current levels in the future.

"For Goldcorp, production has been on the decline since 2015, when the output was at 3.4 million. In 2016 and 2017 the company produced 2.8 million and 2.5 million respectively.

"'Are we not looking for it? Are we bad at finding it? Or have we found it all? My answer is we found it all. At US$1,300 (per ounce of) gold, we found it all. I don't think there are any more mines out there, or nothing significant. And the exploration records indicate that,' Telfer said." ("'We Found It All': Goldcorp Says Mining Reached 'Peak Gold'; Prices to Hit $1,600," Anna Golubova, Kitco News, 05.16.18.)

Keep buying gold as long as it's above this key level - Baruch

Gold price drop does not make it any less bullish and provides long-term value.

"Gold has stumbled during the past month, but that hasn't made me any less bullish on the precious metal.

"The commodity has quietly fallen off the radar as it slipped by as much as 5 percent from its peak one month ago.

"I view this move differently from the rest of the market.

"Instead of a bearish trend, gold has built a constructive chart pattern above the psychological $1,300 mark. The 10 percent spike through December and January has allowed the consolidation over the last 90 days to build a longer-term bull-flag.

"At its highs, gold was overbought and the long trade was overcrowded. This minor correction has relieved both of these technical indicators.

"The net-long positioning in gold has dropped by 80 percent from its peak in January and is now at the lowest level since July when gold began a 13 percent rally into September.

"Last Thursday, gold convincingly closed back above its 200-day moving average for the first time in two weeks, a level that provides tremendous long-term value.

"I like being long gold until a close below the psychological $1,300 mark. If it can get out above resistance at $1,327, I imagine those buyers will quickly come back to the table." (Keep buying gold as long as it's above this key level," Bill Naruch, CNBC, 05.16.18.)

Stocks could shed half their value next year, hedge fund manager Dan Niles warns - Landsman

Hedge fund manager warns that things that make the economy strong today will start to turn and could shed as much as half of the value of stocks by next year.

"Closely watched hedge fund manager Dan Niles sees cracks in the bull market.

"Niles, founding partner at AlphaOne Capital Partners, believes stocks could shed as much as half their value next year.

"'Late 2019, you're really going to have to start to worry. And, why is that? Well, it's because a lot of the themes that are really good right now, when you get a year from now, they are going to turn out to be really bad," Niles said Tuesday on CNBC's "Futures Now." "That's when the real problems are going to start where you have a 20 to 50 percent type of correction."

"He warns economic expansion is getting longer in the tooth - suggesting in a note to CNBC that the "relentless bull market" is breaking down. Niles, who made his name in the tech space, suspects the odds of a recession will rise dramatically late next year.

"'Those things that make the economy strong today like low jobless claims, better commodity prices, etc - that's going to start to turn into a headwind," he said.

"Niles' bearish prediction came as the Dow failed to extend its eight-day win streak - ultimately registering its worst one-day performance of the month. The S&P 500 saw its worst day since May 2." (Stocks could shed half their value next year, hedge fund manager Dan Niles warns," Stephanie Landsman, CNBC, 05.16.18.)