Hold on for inflation equities trade, JP Morgan says

HANDOUT – 18 September 2019, US, Washington: US Federal Reserve (FOMC) chairman Jerome Powell speaks during a press conference. The US Federal Reserve on Wednesday lowered the target range for interest rates by a quarter point – the second cut in just ove

Equity investors should not worry about inflation for the time being despite central banks unleashing monetary policy, JP Morgan said.

The investment bank said it had received questions from clients about a potential surge in inflation caused by extreme stimulus measures from the US Federal Reserve, led by Jay Powell. Such a surge could put an end to strong outperformance by growth and quality stocks.

Mislav Matejka, JP Morgan's head of global and European equity strategy, said he had sympathy with this view but that investors should consider the timing and the sequence of events. In the meantime, technology and defensive shares are winners and gold will perform well during deflation and reflation, he said.

Economies need to work through a deflationary phase before reflation, which is unlikely before the fourth quarter of 2020, Matejka said in a note to clients. A technical rebound in PMI surveys in May or June will fade, he said.

Inflation tends to be a lagging growth indicator, trailing improvements in economic output by about six quarters, JP Morgan said. Given current weak activity inflation could pick up in the second half of 2021, it said.

Tighter bank lending standards also need to start relaxing to make an inflation trade to take hold properly, JP Morgan said. There will be short-term bounces along the way, though.

"These rotations will not be able to sustain as long as bond yields are constrained, oil is directionless, inflation forwards are down, lending standards are tightened, and actual core inflation, as well as wage growth and labour market, remain weak," Matejka wrote

 

David – http://markethive.com/david-ogden

Gold prices today fall for second day in a row, silver edges higher

Gold prices have struggled at higher levels due to weak physical demand

But in the past one year, gold prices are up about 40%

Gold prices in India fell for the second day in a row despite positive global cues. On MCX, June gold futures were down 0.2% to ₹45,722 per 10 gram, after falling 0.70% in the previous session. Silver prices however edged 0.42% higher to ₹43,475 per kg.

In global markets, gold prices were higher, holding above key $1,700 per ounce level. Despite firmer equities and a stronger dollar, gold held firm on worries about a new wave of coronavirus infections as many countries are gradually reopening their economies. Spot gold climbed 0.2% to $1,704.26 per ounce. Among other precious metals, platinum rose 0.7% to $770.66 while silver climbed 0.4% to $15.51.

The second tranche of government of India's gold bonds of this fiscal year opened for subscription today at a time when the investment demand for the precious metal is rising. It will close on May 15. The price of per gram of gold has been fixed at ₹4,590 while those applying online and making payment through digital mode will get a discount of ₹50 per gram.

South Korea has warned of a second wave of the new coronavirus while China on Sunday the highest daily increase in cases since April 28. Wuhan, the epicentre of the outbreak in China, reported five new locally transmitted COVID-19 cases, the highest since March 11.

On the other hand, some increase in physical gold demand improved was seen in China, the world's biggest consumer, though activity remained muted in other countries due to lockdowns and holidays.

Later this week, Federal Reserve Chair Jerome Powell is due to give a key note speech, an event which will be on the radar of gold traders.

Though analysts remain positive on gold amid the coronavirus crisis and massive stimulus announced by central banks, they say that weak physical demand may put pressure on prices at higher levels. Besides, supply worries have eased as some refiners have resumed operations.

Data released on Friday showed the US shedding a staggering 20.5 million jobs in April, the steepest plunge in payrolls since the Great Depression. The head of the International Monetary Fund on Friday warned the United States and China against rekindling a trade war that could weaken recovery from the pandemic.

US President Donald Trump said on Friday he was "very torn" about whether to end the so-called Phase 1 U.S.-China trade deal, just hours after top officials from both countries pledged to press ahead with implementing.

 

11 May 2020, 09:35 AM IST

Written By Surajit Dasgupta

David – http://markethive.com/david-ogden

Don’t be “deceived” by rallies; gold prices and stocks both due for pullback – Phil Streible

Gold prices, in U.S. dollar terms, and stocks are both overbought and traders can expect a correction in the short to medium term, this according to Phil Streible, senior market strategist at Blue Line Futures.

“I just think it’s overvalued at this point. There’s about 311 companies out there that have recently gone into this distressed state. The bankruptcy levels are increasing. I’m quite bearish on U.S. equities,” Streible told Kitco News. “As soon as [the NASDAQ] breaks down a bit, there’s going to be a quick run to the door. I think the S&P 500 should be around 2,500.

Gold prices should be testing the $1,666 an ounce level on the downside and if this floor is broken, the trend could become bearish.

“Gold has really stopped. If you look at that chart pattern, it got over that $1,750 on a closing basis, I thought we were going to run back up into $1,780, we just didn’t do it, we started to slide off. So if you look, it’s got this bearish pattern going on, we’ve got to break that downtrend,” he said. “I really think that gold is not going to be this great asset.”

While in the U.S., stimulus measures have largely been priced into gold since the Federal Reserve has already “thrown everything in,” Streible noted, other countries are about to follow suit and so gold could see price appreciation vis a vis foreign currencies.

“I think gold futures are not going to be as robust as they once were [in U.S. dollar terms], but if you look at gold versus the euro, right now it’s 1,575, the all-time high gold in euros is 1,625. I think that’s your play, gold versus the euro, it will continue to go up,” he said.

The stock markets are really not factoring in the extent of the damage that the economy has suffered due to the pandemic, Streible said.

“It’s very easy to destroy an economy, but it’s very tough to rebuild an economy. Many of these jobs that are lost are not going to come back,” he said, adding that consumer discretionary spending will likely remain weak until December.
 

By Kitco News
For Kitco News

David – http://markethive.com/david-ogden

Gold breaks solidly to the upside with gains of 2.29% on the day

If you recall from my articles from earlier this week, first on Tuesday, May 5 titled “Gold prices firm as U.S. dollar continues to climb”, we included a daily candlestick chart which included a hand-drawn compression triangle, commonly referred to as a pennant formation. We also included an arrow indicating that we were expecting a breakout to the upside. Below is that chart which was available to viewers on Tuesday.

This was followed by another daily candlestick chart yesterday May 6 (see chart Below), in which we had drawn in the compression triangle even though the market had moved to the very bottom of the range, at the support trendline. This chart was sent to our subscribers. Although the market closed on that day right at a critical support line of the compression triangle, we reported that there was no solid break below that trendline, and that it did not constitute any kind of major technical chart damage.

This Western pattern (pennant) is a widely accepted technical tool in which we look for the compression of range, which simply put is created when a market trades sideways with a number of lower highs, and simultaneously higher lows. You can see that on the chart below.

As of yesterday, May 6, the fact that gold had opened at the high of the compression triangle and closed just at the lows made it seem a little less likely that the breakout I was expecting would be to the upside.

My rationale for looking for an upside break was that when technicians view a compression triangle as it releases energy from the apex of that triangle it will typically break above or below support and resistance lines, but most importantly have a significant release of momentum. The energy is accumulated as the range compresses, and is released once a stock or commodity breaks above or below the pattern. Typically, the break out once again move to the most prevalent trend direction, which in the case of gold has definitely been higher.

While it will be tomorrow’s Labor Department’s jobs report that will have a profound and great influence on how the week ends based upon the technical studies, we have presented over the last few days, I believe there is a high probability that we will see a continuation of higher pricing.

Wishing you as always good trading and good health,

By Gary Wagner

Contributing to kitco.com

 

 

 

David – http://markethive.com/david-ogden

Wheaton loads up in silver in Q1

Wheaton Precious Metals (TSE:WPM) said today attributable gold equivalent production was over 180,000 ounces in the first quarter partially driven by record attributable silver production at Peñasquito.

Silver ounces produced was at 6.7 million ounces, up 18.5% from the same period a year ago.

Revenue was $255 million in the first quarter of 2020 representing a 13% increase from the first quarter of 2019 due primarily to an 18% increase in the average realized gold equivalent price; partially offset by a 4% decrease in the number of gold equivalent ounces sold.

Over $177 million in operating cash flow was generated in the quarter, an increase of over 50%.

Net debt was reduced by $182 million with Wheaton ending the first quarter in a net debt position of $589 million.

The company declared a quarterly dividend of $0.10 per common share.

Wheaton said its outlook is currently withdrawn.

"This pandemic is evolving rapidly and its effects are uncertain," wrote the company.

Last month the company announced a $5 million fund to aid communities affected by COVID-19.

 

By Kitco News

For Kitco News

David – http://markethive.com/david-ogden

B2Gold touts record revenue, cashflow, gold production

B2Gold (TSX:BTO) said today it had record quarterly total gold production of 264,862 ounces in Q1.

Revenue was up 44% to $380 million, also a record.

The quarterly consolidated cash flow provided by operating activities from the company's three operating mines was $216 million, also a record. Cash-flow was up $130 million or 151% over the first quarter of 2019.

The jump in gold production over the first quarter of 2019 was driven by the Fekola Mine in Mali, which had a strong start to the year with record quarterly gold production of 164,011 ounces, well-above budget by 9% (14,011 ounces) and 49% (53,662 ounces) higher compared to the first quarter of 2019. Fekola's significant increase in gold production over the first quarter of 2019 was mainly due to expansion of the Fekola mining fleet and optimization of the pit designs and mine plan for 2020, which have provided access to higher grade portions of the Fekola deposit earlier than anticipated in previous mine plans.

Consolidated all-in-sustaining-costs for the first quarter of 2020 were $695 per ounce sold, $110 lower than AISC in the first quarter of 2019. The favourable budget variance resulted from lower-than-budgeted cash operating costs and lower-than-budgeted sustaining capital and exploration expenditures (mainly due to timing and expected to be incurred later in 2020).

At the end of the first quarter of 2020, B2Gold's Calibre announced the temporary suspension of its Nicaraguan operations due to COVID-19. B2Gold has a 34% share of Calibre's production.

The company said it doesn't anticipate any other work stoppages due to COVID-19.

By Michael McCrae
For Kitco News

David – http://markethive.com/david-ogden

Coronavirus pandemic, and about $145 billion remains in the congressionally approved fund, the U.S. Small Business Administration and Treasury Department said Sunday.

The SBA has processed about 2.2 million loans worth more than $175 billion since Congress last month authorized more funding for the Paycheck Protection Program, part of almost $3 trillion in spending to fight the heavy economic toll of the pandemic, which has thrown about 30 million Americans out of work.

The second round of funding was launched on Monday, allowing lenders to issue forgivable, government-guaranteed loans to small businesses shuttered by the outbreak.

The average loan size in the second round of the PPP loan processing has been $79,000, according to the statement released on Sunday.

The U.S. government's $660 billion small business rescue program has stumbled on missing paperwork, technology failure, and the misdirection of funds to big corporations. It also faces the hurdle of forgiving those hastily arranged loans.

The latest data released by the government does not address complaints around the transparency of the program. For example, it not include a breakdown of industries that have received loans.

The pandemic, which has killed more than 66,000 people in the United States, has shuttered wide swaths of American life, closing many businesses and schools and leaving hundreds of millions largely sheltering at home. Over the past week some U.S. states have begun to allow some businesses to reopen.

U.S. processes over $500 billion in small business loans to stem coronavirus fallout

The United States has made over $500 billion in loans to small businesses hit hard by the coronovirus

David – http://markethive.com/david-ogden

Gold solidly down Thursday, following sell off in U.S. equities

Gold prices are posting solid losses in midday U.S. trading Thursday and were near daily lows, following the U.S. stock indexes lower as they also extended daily losses. Bullish outside markets today–a lower U.S. dollar index and sharply higher crude oil prices—offered no support to the precious metals. Some more profit taking in gold and silver from the shorter-term futures traders is featured today. June gold futures were last down $18.00 an ounce at $1,696.50. May Comex silver prices were last down $0.18 at $14.98 an ounce.

Thursday’s weekly jobless claims report, which has become the focal point of the marketplace in recent weeks, showed a rise of 3.84 million in new claims. The number was forecast to be 3.5 million. The report is a reminder of the dour state of the U.S. economy. The U.S. stock market lost its overnight gains after the release of this report.

Global stock markets were mostly firmer in overnight trading. Some upbeat news Wednesday on a drug trial that lessens the effects of Covid-19 and a big rebound in crude oil prices prompted some better trader and investor risk appetite as April winds down. Many U.S. states are now partially reopening their businesses.

In other news, the European Central Bank left its monetary policy unchanged at its regular meeting Thursday. However, the ECB also painted a very bleak picture for the Euro zone economy. The Euro zone gross domestic product contracted by 3.8% in the first quarter from the fourth quarter of 2019, and was down 14.4%, year-on-year, it was reported overnight. Those numbers are a record for the 14-nation bloc. The year-on-year decline in Euro zone GDP was much greater than the 4.8% drop in U.S. GDP in the same period, and reported on Wednesday.

A Reuters (Refinitiv) survey just released shows global jewelry fabrication volumes, which typically account for around 55% of total physical demand for gold, fell 40% in the first quarter, year-on-year. Investment demand was mixed, with retail investment, which consists of bars and coins, posting an 11% year-on-year drop. Physical gold demand fell to 753 metric tons in the first quarter, the lowest levels since 2009 as higher gold prices led to a drop in consumption. The biggest declines were recorded in Asia at down over 43% year-on-year. Chinese demand recorded a 62% decline in jewelry fabrication in the period.

The important outside markets see Nymex crude oil again solidly higher and trading around $17.50 a barrel. The U.S. dollar index is solidly lower today. The greenback bulls are fading fast this week, partly on notions other major countries’ economies are coming back to life faster than that of the U.S. The 10-year U.S. Treasury note yield is trading around 0.6% today.

Technically, June gold futures scored a bearish “outside day” down on the daily bar chart today. The bulls still have the firm overall near-term technical advantage amid a six-week-old price uptrend still in place on the daily bar chart. Gold bulls' next upside near-term price objective is to produce a close above solid technical resistance at the April high of $1,788.80. Bears' next near-term downside price objective is pushing prices below solid technical support at last week’s low of $1,666.20. First resistance is seen at $1707.80 and then at $1,725.00. First support is seen at today’s week’s low of $1,687.50 and then at 1,675.00. Wyckoff's Market Rating: 7.0

May silver futures also scored a bearish “outside day” down on the daily bar chart today. The silver bulls have the slight overall near-term technical advantage. However, a four-week-old uptrend on the daily bar chart has stalled out. Silver bulls’ next upside price objective is closing prices above solid technical resistance at the April high of $16.30 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $14.00. First resistance is seen at $15.25 and then at $15.50. Next support is seen at today’s low of $14.795 and then at $14.56. Wyckoff's Market Rating: 5.5.

May N.Y. copper closed down 285 points at 234.60 cents today. Prices closed near the session low today on profit taking after hitting a six-week high early on. The copper bulls still have the overall near-term technical advantage. Prices are in a five-week-old uptrend on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 250.00 cents. The next downside price objective for the bears is closing prices below solid technical support at last week’s low of 214.95 cents. First resistance is seen at today’s high of 240.80 cents and then at 243.00 cents. First support is seen at Wednesday’s low of 233.40 cents and then at 230.00 cents. Wyckoff's Market Rating: 6.0.

 

By Jim Wyckoff

 

David – http://markethive.com/david-ogden

Gold ETF demand sees 300% annual Increase in first quarter

Gold-backed exchange-traded products were the prevailing asset to own, driving global demand for the yellow metal in the first quarter, as the world economy was crushed by the COVID-19 health crisis, according to the latest research from the World Gold Council (WGC).

Thursday, in its first-quarter Global Demand Trends report, the WGC said that total gold demand increased to 1,083.8 tons between January and March, up 1% compared to gold demand in the first quarter of 2019.

 

The dominant theme in the gold market remains unprecedented investor demand for the yellow metal, through exchange-traded funds (ETFs). The report said that gold-backed ETFs saw inflows of more than 298 tons in the first three months of the year, which pushed global holdings in these products to a record high of 3,185 tons. The WGC said that ETF inflows in the first quarter were up more than 300% compared to inflows last year.

“The coronavirus outbreak, which swept the globe during the first quarter, was the single biggest factor influencing gold demand. As the scale of the pandemic – and its potential economic impact – started to emerge, investors sought safe-haven assets,” the analysts said in the report.

ETF demand, which hit its highest level in four years, helped to drive prices to a nearly 8-year high, the WGC said.

“Consequently, global gold demand in value terms reached US$55bn – the highest since Q2 2013,” the analysts said.

A rush into ETFs is pretty much the one factor that drove gold demand as key sectors saw significant declines.

The WGC said that bullion investment in coins and bars in the first quarter fell to 241.6 tons, down 6% from the first quarter of 2019. However, it was a tale of two markets as Western demand for bullion coins hit a three-year high of 76.9 tons, an increase of 36% from last year.

However, demand for gold bars dropped by 19% to 150.4 tons.

“Demand for small bars is far more prevalent in East Asian markets, which were among the earliest to be hit by the coronavirus and lockdown measures. Local record high gold prices in these markets also encouraged profit-taking at points during the quarter,” the analysts said.

Jewelry demand fell off a cliff in the first quarter

While investment demand was strong in the first quarter, the same could not be said for the jewelry market, the most significant segment of demand for physical gold.

“Almost without exception, jewelry markets across the globe recorded y-o-y losses as the impact of the coronavirus compounded the effect of high, and steeply rising, gold prices,” the analysts said. “Jewelry consumption plunged in Q1 as local gold prices in various countries rocketed and markets were shuttered in efforts to contain the coronavirus pandemic.

In total, global jewelry demand dropped to 325.8 tons, down 39% compared to the first quarter of 2019. Jewelry demand fell to its lowest level on record, the WGC said.

The report noted that China was the hardest hit, with jewelry demand falling 65% in the first quarter.

Looking at Indian jewelry demand, another essential gold market, the WGC said that demand fell 41% in the first quarter. They added that jewelry demand could get a lot worse.

“While Q1 demand was hard hit, we expect the impact of COVID-19 to be more severe in the second quarter, as the lockdown extends into May. This will impact gold demand during the key buying festival of Akshaya Tritiya, as well as wedding-related purchases,” the analysts said.

The WGC said that U.S. jewelry demand saw its first quarterly decline since the fourth quarter of 2016.

“The healthy growth in U.S. jewelry consumption over the last three years abruptly reversed in Q1. Demand slipped 3.7% y-o-y to 23.1t, the decline being almost purely COVID-related,” the analysts said.

Central bank demand totaled 145 tonnes in the first quarter, an 8% decline compared to last year. The WGC noted that only six central banks purchased more than 10 tons of gold between January and March.

“While central bankers around the globe were focused on the measures needed to contain the economic impact of COVID-19, the need for robust, liquid and diversified international reserves was apparent. And positive net purchases of gold confirm that it remains an important component of those reserves,” the analysts said.

Gold supply drops in Q1

While the gold market continued to see demand growth, the market also saw a decline in supply. The WGC said that total gold supply in the first quarter was 1,066.2 tons, down 4% compared to the first quarter of 2019.

The WGC noted that mine supply dropped 3% as miners had to shut down production last month as governments tried to slow the spread of the coronavirus, closing all non-essential businesses.

“The y-o-y decline in mine production in Q1 is somewhat unsurprising given the scale of disruption caused by the global coronavirus pandemic. Most industries have been affected by the spread of the virus, and mining is no exception,” the analysts said.

 

By Neils Christensen

For Kitco News

David – http://markethive.com/david-ogden

Trump victory in November is no longer base-case scenario, here’s why

The pandemic has made it more difficult for current President Donald Trump to be re-elected in November, this according to Matt Gertken, vice president of geopolitical strategy at BCA Research.

A Trump victory is no longer the base-case scenario, Gertken said, owing to the fact that a recession has traditionally made it difficult for an incumbent to be re-elected.

“President Trump was lined up to win the election,” Gertken told Kitco News. “We’ve got good data on [the elections], going back over a hundred years of very regular data. It shows that elections that are held during recessions are usually very negative for the incumbent. Trump will be trying to win and do something that has not been done since 1904, which is despite a recession, win re-election.”

As unemployment rises, he said, voter turnout will also rise proportionally.

However, voters will also take into consideration that the pandemic was not initially Trump’s fault.

“It’ll be important to see if his approval ratings continue to remain pretty firm in the wake of the crisis, but generally speaking you would expect that if unemployment goes up, the president’s approval goes down and he’s much less likely to win re-election,” he said.

Favor has now shifted in favor of the Democrats, Gertken said.

“I’d say the base case is that Biden wins simply because people look around in October…and they don’t have a job,” he said.

North Korea remains a major risk to global stability, Gertken noted. If North Korean leader Kim Jong-Un were to pass away, tensions on the Korean Peninsula could escalate.

“If he dies, if he is incapacitated, that is a threat to global stability, so that will inject a risk premium into assets in the region,” he said.

Importantly, China may step in to fill the void of North Korea should the need arise.

“Today, we’re in an environment in which the United States and China do not have stable relations. In that context, if you then lose the North Korean leader, you’d have a power vacuum,” he said.

 

By Kitco News

David – http://markethive.com/david-ogden