KITCO NEWS/Jim Wyckoff

Gold prices sharply up as U.S. stocks, crude oil rebound

April 22, 2020

Gold prices are posting strong gains in early U.S. trading Wednesday, as the U.S. stock market has rebounded from selling pressure seen on Monday and Tuesday, while crude oil prices are also posting solid advances at mid-week. There also could be some safe-haven demand amid talk some Asian investors and financial markets have been badly hurt by the collapse in crude oil prices this week. A weaker U.S. dollar index is also working in favor of the precious metals markets bulls.

Global stock markets were mostly up in overnight trading. U.S. stock indexes are solidly higher in early New York trading. The U.S. stock indexes are seeing a corrective bounce at mid-week, following solid losses scored on Monday and Tuesday. The U.S. equity traders are watching corporate earnings reports that have started to come out this week, but have been mostly overshadowed by the collapse in the global crude oil market. The marketplace is showing some reaction to a tweet from President Trump Wednesday morning that said, ‘I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.’ A while after the tweet, gold prices slightly extended gains, while crude oil prices rallied.”

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MARKET WATCH/Mark DeCambre

Gold price surge 2% to retake $1,700 as BofA forecasts metal will surge to $3,000

April 22, 2020

“Gold futures were higher Wednesday morning as weakness in the U.S. dollar and nagging concerns about the global economy, supported a rally in the precious metal.  ‘All the bullish reasons to belong to gold in the medium term still apply—notably, the incomprehensible amount of money being printed by central banks and fiscal spending by governments to offset the impact of the coronavirus outbreak,’ wrote Stephen Innes, of AxiCorp,

BofA Global Research raised its 18-month price target for gold to $3,000 an ounce from $2,000 or more than 50% above a nine-year old record at around $1,921, citing the prospects of endless monetary expansion from central banks, including the Federal Reserve, to limit the economic damage from the COVID-19 pandemic. A slide in the dollar, off 0.3% against a basket of a half-dozen currencies, as gauged by the Intercontinental Exchange Inc. also was helping to support an advance for precious metals. A softer greenback can make commodities priced in the currency more attractive for buyers using other monetary units.”

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BLOOMBERG/Noah Smith

How Bad Might It Get? Think the Great Depression

April 22, 2020

“As the economic carnage from the coronavirus pandemic continues, a long-forbidden word is starting to creep onto people’s lips: ‘depression’ … Since the 1930s, economists and commentators have used the word ‘recession’ to describe economic slumps, and none of them have been nearly as severe as the Great Depression. The only time this convention was really challenged was after the financial crisis of 2008. The global nature of the downturn, sparked by troubles in the financial industry, led many to draw parallels with the Great Depression. In the end, the term ‘Great Recession’ stuck.

The economic damage from coronavirus, however, threatens to dwarf the 2008 downturn. More than 22 million people, or about 13% of the U.S. labor force, have already filed for unemployment. Current forecasts are for the unemployment rate to reach 20% this month. Some predict it could go as high as 30% this year. That would eclipse even the Great Depression in severity. So, if severity alone is the criteria for a depression, this one will certainly deserve the moniker. President Ronald Reagan once quipped that ‘recession is when your neighbor loses his job; depression is when you lose yours.’ There will be few people whose economic livelihoods are not hurt by the coronavirus.”

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BARRON’S/Reshma Kapadia

Earnings Season Has Been Bad. Next Quarter Will Be Even Worse.

April 22, 2020

“About one-fifth of S&P 500 companies report earnings this week, so many investors are looking for signs of how bad the hit from Covid-19 will turn out to be. The worst news may not come until later in the year, bringing trouble for stocks … The first quarter was the relatively easy part of the coronavirus outbreak for many companies. Businesses didn’t see much of a pandemic-related hit until the country went into different stages of lockdown in the last three weeks of the quarter. Extrapolating from those final weeks could offer a ballpark view of the worst-case scenario of how the second quarter will look, said Jonathan Golub, chief U.S. equity strategist for Credit Suisse, in an interview. 

The real challenge will be in forecasting the rest of the year, given the magnitude of the uncertainty over when the economy will reopen, what that will look like, and what happens to the virus as restrictions are eased. Many companies aren’t ready to make those calls … That lack of guidance could leave analysts’ estimates for future quarters too high, meaning a slow drip of bad news and a period of revisions to earnings forecasts lie ahead, Golub said. ‘If analysts or companies took a harsher view on where things are going, then you would have earnings bottom more quickly,’ he said. About 41 companies reported earnings last week, with their results broadly suggesting a 15% drop in earnings per share from the prior year. Banks’ results were the most disappointing so far, but analysts foresee trouble in the oil patch.”

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CNBC/Ylan Mui and Karen James Sloan

Massive layoffs and pay cuts are likely coming to state and local governments

April 22, 2020

“State and local governments are warning of a wave of layoffs and pay cuts after getting left out of the federal coronavirus relief package expected to pass Congress this week. In many places, those painful reductions are already taking shape. Los Angeles plans to force city workers to spend 26 days on unpaid leave as revenues are forecast to drop as much as $600 million next fiscal year. Detroit has proposed laying off 200 workers and furloughing thousands more. Ohio’s Hamilton County, Commissioner Denise Driehaus is taking a 10% pay cut alongside county workers.

‘We are really struggling,’ Driehaus said. The $2.2 trillion emergency legislation known as the CARES Act, which President Donald Trump signed late last month, included $150 billion in direct help for state and local governments grappling with the impact of the deadly outbreak. Democrats pushed to include another $150 billion in the next tranche of aid, but Republicans sought to keep the bill narrowly focused on support for small business. Local jurisdictions may not be able to wait that long. They’re facing higher expenditures on health care and other services to combat the disease at the same time that revenues are plunging as Americans stay home and businesses remain shuttered. According to the Center on Budget and Policy Priorities, states could be $500 billion in the hole over the next two years. ‘The approaching state budget cuts … will cause the U.S. economy to contract further — making the economic downturn deeper and more protracted,’ CBPP President Robert Greenstein said.”

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BLOOMBERG/ Matthew Boesler and Yuko Takeo

The Fed Is Buying $41 Billion of Assets Daily and It’s Not Alone

April 20, 2020

“Central-bank balance sheets are expanding to record levels amid their latest buying spree, raising questions about how big they can get and whether those assets can ever be sold back to markets. Policy makers didn’t have much luck paring down much smaller portfolios in the decade since the financial crisis. And now they have to bankroll a coronavirus economy that’s putting government budgets under unprecedented strain and threatening to drive companies everywhere out of business.”

“Central banks in Group of Seven countries purchased $1.4 trillion of financial assets in March, nearly five times as much as the previous monthly record set in April 2009, according to a Bloomberg Economics analysis. Morgan Stanley analysts estimate that the Federal Reserve, European Central Bank, Bank of Japan and Bank of England will expand their balance sheets by a cumulative $6.8 trillion when all is said and done … Central bankers in the euro area, Japan and the U.K. — old hands at so-called quantitative easing programs by now — have all ramped up buying, while those in Canada, New Zealand and Australia have embarked on large-scale purchases for the first time, joining Sweden among smaller economies to do so.”

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