REUTERS/Swati Verma and Harshith Aranya

Gold sheds 1%, palladium 10% as oil rout prompts dash for cash

April 21, 2020

“Gold prices fell more than 1% to a near two-week low on Tuesday, while palladium tumbled 10% as a rout in oil markets prompted panic selling across assets and forced investors to sell precious metals to cover their losses.  Spot gold was down 0.8% at $1,678.68 per ounce by 1050 GMT. U.S. gold futures dropped 1.2% to $1,690.40.  Palladium was last 9.4% down at $1,962.45 an ounce, while platinum dipped 3% to $747.82 and silver fell 2.4% to $15.01.

‘The collapse in oil prices has continued today, creating another dash for cash, and no market is being left unscathed,’ Saxo Bank analyst Ole Hansen said, adding the $1,635 level could be the next target for gold.  Worries about credit defaults are rising and ‘into that environment, gold is not able to withstand the pressure coming from the need to de-leverage’, he added. U.S. oil futures traded in negative territory, after sinking below zero for the first time ever on Monday, as concern grew the sector will run out of storage. The nose-dive in U.S. crude prices and dismal corporate earnings reports prompted concerns about the lasting damage to the global economy from the pandemic.”

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KITCO NEWS/Neils Christensen

Hold gold as exit from COVID-19 stimulus measures will be messy – CIBC

April 21, 2020

CIBC logo“A global economy that has grounded to a halt because of the global COVID-19 pandemic is raising concerns of a deep deflationary environment, which could be negative for gold; however, one Canadian Bank, said that investors should pay more attention to the inflationary risks, being driven by central bank monetary policy and fiscal spending, as the economy recovers. Analysts at CIBC said that an inflation storm is brewing in the gold market that will continue to support higher prices. Looking at interest rates, the analysts said that during periods of negative interest rates, gold prices have at least doubled. ‘So far, the move has been about 50%,’ the analysts said.

Investors can’t underestimate the impact central bank monetary policy will have on financial markets. ‘We have never seen governments and central banks as involved in the global economy as they are today,’ they said. ‘While that is clearly needed given the state sanctioned stay-at-home directives to deal with the health risks associated with the COVID-19 virus, the disruption arising from public sector involvement and ultimate exit from the corporate world will likely be messy.’”

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CNBC/Fred Imbert and Yun Li

Dow tumbles for a second day, falls more than 300 pts amid a relentless oil drop

April 21, 2020

man with head on knees“U.S. stocks fell sharply once again on Tuesday as oil prices continued their unprecedented wipeout. The Dow Jones Industrial Average slid 368 points, or more than 1%. The S&P 500 dropped 1.6% while the Nasdaq Composite dropped also fell 1.6%. Traders were focused on the strange happenings with oil futures once again, which raised concern about deep losses for the energy industry hitting the U.S. economy even further. On Monday, the May contract for oil futures expiring Tuesday fell to zero and then went to an actual negative price, meaning producers would pay for someone to take the oil off their hands. The bizarre move has to do with the fact that because of the coronavirus shutdowns, big buyers of oil like refineries don’t need any more oil because their tanks are nearly filled.

That May contract clawed back into the back in early trading on Tuesday.  “If we ever needed a reminder for the extent of the abrupt decline in global economic activity, it is the fact that WTI oil futures saw a negative price,” said Tom Lee, head of research at Fundstrat Global Advisors, in a note. ‘But oil is a residual issue of the broader global stay at home and this situation will not change until Western nations and US states begin opening up. And they cannot open up until each jurisdiction feels they have a handle on the healthcare crisis.’ More concerning to traders on Tuesday was the selling now occurring in later month contracts for oil futures. The more actively traded June oil contract was down 29% to $14.56 Tuesday. That contract expires on May 19.”

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MARKET WATCH/Shawn Langlois

‘The world is more screwed up’ than the stock market is currently reflecting, warns billionaire investor

April 20, 2020

billionaires“‘We’re only down 15% from the all-time high of Feb. 19… it seems to me the world is more than 15% screwed up.’ That’s the position of Howard Marks, the billionaire founder of Oaktree Capital, commenting in an interview Monday on what he sees as a huge disconnect between what the coronavirus pandemic is doing to the global economy and what we’re seeing in the stock market. ‘It took seven years to get back to the 2000 highs in 2007. It took 5½ years to get back to the 2007 highs in late 2012,’ Marks explained. ‘So, is it really appropriate that, given all the bad news in the world today, we should get back to the highs in only three months? That seems inappropriately positive.’

Separately, he echoed that bearishness in a recent memo, saying that the chances are high that the Dow, S&P and the Nasdaq Composite Index will all slip below those recent nadirs. ‘It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies,’ he wrote. ‘But doing so should be the investor’s greatest aspiration.’ The S&P 500, getting a boost from an unprecedented stimulus has bounced back nicely from its March 23 low, but it’s still down more than 15% from its record as the U.S. economy continues to grapple with historic job losses and plunging retail sales. ‘People are traumatized, and not just because of the performance of their stocks,’ Marks said. ‘Everybody’s life is hugely changed.’”

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BLOOMBERG/Christopher Condon and Dave Merrill

U.S. Debt to Surge Past Wartime Record, Deficit to Quadruple

April 21, 2020

economy and markets“The U.S. budget deficit may quadruple this year to almost $4 trillion. Projections from the Committee for a Responsible Federal Budget (CRFB) say that by 2023 U.S. debt held by the public will surpass records set in the post-World War II years. And these projections only include spending enacted so far—in a three-month-old crisis that has seen emergency Congressional appropriations top $2.3 trillion. Additional spending is almost certain as the pandemic destroys millions of jobs and thousands of businesses while slashing tax revenues for local and state governments.

Even before the crisis, U.S. debt-to-GDP had more than doubled to 79% in 2019 from 35% in 2007. Deficit hawks, already hard to find, disappeared once the virus shut down whole swaths of the U.S. economy. The Coronavirus Aid, Relief, and Economic Security (CARES Act) legislation passed on a unanimous voice vote. Lawmakers understood that frugality made no sense in the face of impending economic collapse.”

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BUSINESS INSIDER/Ben Winck

Chicago Fed’s top economic index suggests US entered a recession in March

April 20, 2020

business cycles graph“The Federal Reserve Bank of Chicago’s benchmark economic measurement plummeted to recessionary levels in March as the nation grappled with business closures, skyrocketing unemployment, and feeble demand. The central bank’s National Activity Index declined to -4.19 across the four broad segments creating the metric, its lowest level since the financial crisis. Of the 85 indicators used in the metric, 65 read negative, 18 gained, and two stood neutral. February’s reading was revised lower, to 0.06 from 0.16. The index’s three-month moving average tanked to -0.32 from -0.21 in February.

The index’s zero value suggests the economy isn’t growing at its expected trend. Values for the three-month average below -0.7 indicate ‘an increasing likelihood of a recession,’ the Fed said. The index’s bleak reading arrived as numerous other indicators have forecast a sharp economic downturn through the first half of the year. Retail-sales data published Wednesday showed a record 8.7% decline in March as consumers braced for prolonged economic lockdowns. Unemployment has also surged amid the virus-induced slump. Jobless claims filed over the past four weeks surpassed 22 million, effectively erasing all jobs created since the 2008 recession. The Fed’s index reflects data up to April 16. The metric’s next update is scheduled to be released at 8:30 a.m. ET on May 26.”

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