REUTERS/Swati Verma and Harshith Aranya

Gold’s rally will be tamed by dollar strength, weak physical market – Reuters poll

April 20, 2020

“Gold prices are expected to consolidate below recent highs during 2020 and 2021 as increased demand from investors for the ‘safe haven’ asset is offset by dollar strength and weak retail consumption, a Reuters poll showed on Monday. Spot gold has surged more than 10% this year, reaching an around 7-1/2 year high of $1,746.50 on April 14, as the coronavirus pandemic roiled global markets and central banks unleashed a wave of monetary stimulus.  Gold is often sought as a safe store of value in times of economic turmoil and benefits from central bank easing which pushes down bond yields and raises fears of inflation that erodes the value of other assets, making the metal attractive.

The poll of 37 analysts and traders returned a median forecast for gold prices to average $1,639 an ounce in 2020 and $1,655 in 2021.  The forecasts are sharply higher than in a similar poll in January. Bullion will likely be pressured by a strong U.S. dollar, which makes gold more costly for buyers with other currencies, and plummeting demand in India and China where many consumers are locked down and losing income, analysts said … But low bond yields and expectations of further economic stimulus measures should keep demand for gold healthy over the longer term.”

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KITCO NEWS/Allen Sykora

Long-term investors are the ones boosting gold, not futures traders – analysts

April 20, 2020

gold on a roller coaster“Longer-term investment buying such as exchange-traded funds has been the main fuel pushing gold prices higher in recent weeks, with Commodity Futures Trading Commission (CFTC) data showing the net-bullish posture of money managers in the futures market has not changed much so far this month, analysts said … Money managers trading in the futures market have been ‘hardly involved at all’ in the price rise, commented Commerzbank analyst Carsten Fritsch. ‘For five weeks now, their net-long positions have remained virtually unchanged at a comparatively moderate level,’ Fritsch said.

‘The price rise…was not driven by speculation, in other words, which also means there is no need for any correction on the part of this group of investors.’ ‘The robust purchases of gold ETFs did play an important role in the gold-price upswing, on the other hand. They have totaled 112 [metric] tons since the beginning of the month.’ … ‘This is now the 20th instance of inflows [of gold] into ETFs, and silver is being added into ETFs as well,’ he said.”

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CNBC/Fred Imbert

Dow drops more than 300 points as oil prices fall on energy demand concerns

April 20, 2020

looking for a bottom“Stocks fell sharply to start the week on Monday as investors weighed the latest coronavirus news along with a sharp decline in U.S. crude prices. The market was coming off its first back-to-back weekly gains in more than two months. The Dow Jones Industrial Average traded 390 points lower, or 1.6%. The S&P 500 slid 1.2% while the Nasdaq Composite dropped 0.9%. Chevron and Exxon Mobil fell more than 5% each to lead the Dow lower. The S&P 500 energy sector lost more than 6% in early trading as Occidental Petroleum and Halliburton both fell more than 10%.

Equities were following a decline in U.S. oil prices, which raise concerns about how deep the economic slowdown will be this quarter and also hit the prices of energy stocks. The May contract for West Texas Intermediate, which expires on Tuesday, plunged more than 32% to $12.30 per barrel on weak demand outlook and storage capacity issues. The negative impact on stock futures from oil likely would have been worse were it not for lesser declines in oil contracts expiring during future months. WTI’s June contract slid over 7% to $23.14 per barrel. July’s oil contract was down 4%. Analysts chalked it up to the collapse in demand for oil contracts expiring this week. Refineries don’t need the oil and are near storage capacity with most of the country shut down.”

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BLOOMBERG/Alex Longley and Javier Blas

Oil Plunges by Record to Below $11 With Storage Rapidly Filling

April 20, 2020

go your own way chart“Oil suffered its biggest one-day price plunge in the modern era, at one point crashing about 40% to below $11 a barrel as traders contended with an historic glut. Despite OPEC+’s unprecedented output deal agreed a week ago, the oil market remains massively oversupplied as the lockdowns to fight the spread of the coronavirus reduce global crude demand by about a third. Storage tanks across the globe are rapidly filling.

‘There is no limit to the downside to prices when inventories and pipelines are full,’ tweeted Pierre Andurand, the head oil hedge fund. ‘Negative prices are possible,’ he added. In early trading in New York, West Texas Intermediate fell to as low as of $10.96 a barrel, the weakest level since 1998. The plunge was exaggerated as the May futures contract expires on Tuesday, leading to a fire-sale among traders. The June contract fell 13% to $21.80 a barrel at 9:13 a.m. local time. Brent declined 7.1% to $26.08. There are signs of weakness everywhere. Buyers in Texas are offering as little as $2 a barrel for some oil streams, raising the possibility that producers may soon have to pay to have crude taken off their hands. The nearest time spread for the U.S. benchmark has fallen to its weakest level on record … Crude explorers shut down 13% of the American drilling fleet last week. While production cuts in the country are gaining pace, it isn’t happening quickly enough to avoid storage filling to maximum levels, said Paul Horsnell, head of commodities at Standard Chartered.”

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MARKET WATCH/Steve Goldstein

The S&P 500 may slump below 2,000 by summer, even with the Fed’s help

April 20, 2020

people together wearing masks“Charles Dumas, a veteran of General Motors in the 1970s and JPMorgan in the 1980s, has seen a market downturn or two. Now chief economist at TS Lombard in London, Dumas recalls a story told by TS Lombard colleague Larry Brainard, when Mexico in August 1982 told the U.S. and the International Monetary Fund it couldn’t service its debt.  About a month later at the IMF’s meetings, few were concerned, Brainard recalled.  ‘What in fact [Mexico’s announcement] was, was a sign of the so-called MBA problem (Mexico, Brazil, Argentina) — and six months later, everyone realized just how much trouble there was,’ Dumas says.

He uses that as analogous to why the current stock market isn’t correctly pricing in the economic deterioration. Consumer spending is getting obliterated at the moment, and won’t recover quickly once the shutdowns across the U.S. and Europe are lifted, in part because of the virus risk at sports events, theaters, restaurants and bars. He notes that consumer spending is larger than labor income — which itself is getting ravaged because of the spike in unemployment — because of profit income. ‘Profit income is likely to be very bleak indeed in the second quarter, causing a knock-on effect towards more savings,’ he says. Tax cuts won’t lead to much in the way of consumer spending, and businesses will cut capital spending aggressively.  The economy will probably fall at an annual rate of around 20% in 2nd quarter, and will fall further in 3rd quarter. He said the firm’s modeling suggests earnings per share will fall about 20% and 30% this year. Giving the S&P 500 a price-to-earnings ratio of about 16 for a ‘reasonably depressed environment,’ leads to an S&P 500 below 2000.”

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World economy bound to suffer ‘severe recession’: IMF

April 18, 2020

coronavirus“The world economy, already ‘sluggish’ before the coronavirus outbreak, is now bound to suffer a ‘severe recession’ in 2020, IMF chief Kristalina Georgieva warned and said the current crisis posed daunting challenges’ for policymakers in emerging markets and developing economies.  Addressing the Development Committee Meeting during the Spring Meeting of the International Monetary Fund and the World Bank, the IMF Managing Director said a large global contraction the first half of this year was inevitable.

She said the coronavirus pandemic hit the world economy when it was already in a fragile state as it was weighed down by trade disputes, policy uncertainty and geopolitical tensions. ‘The global coronavirus outbreak is a crisis that is like no other and poses daunting challenges for policymakers in many emerging market and developing economies (EMDEs), especially where the pandemic encounters weak public health systems, capacity constraints, and limited policy space to mitigate the outbreak’s repercussions,’ Georgieva said. ‘Medium-term projections are clouded by uncertainty regarding the pandemic’s magnitude and speed of propagation, as well as the longer-term impact of measures to contain the outbreak, such as travel bans and social distancing,’ she said.”

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