REUTERS/Karthika Suresh Namboothiri

Gold firms as trade deadline nears; investors await Fed verdict

December 10, 2019

Gold Prices Today“Gold rose on Tuesday on uncertainty over U.S.-China trade talks ahead of a Dec. 15 tariff deadline while investors looked to the U.S. Fed’s policy meeting for cues on its 2020 monetary outlook. Spot gold rose 0.4% to $1,467.00 an ounce at 1323 GMT while U.S. gold futures gained 0.5% to $1,471.50. ‘Gold is riding higher on dollar weakness and caution ahead of a looming tariff deadline,’ said analyst Lukman Otunuga. If Washington proceeds with the earmarked tariffs, risk aversion is likely to engulf financial markets until the end of the year.

Agriculture Secretary Sonny Perdue said President Trump does not want to implement the next round of scheduled tariffs against Chinese goods on Dec. 15 but wants ‘movement’ to avoid them. The protracted trade war between the world’s two largest economies has fanned recessionary fears, putting safe-haven gold on track for its best year since 2010. A weaker dollar versus major currencies also offered support. ‘Gold has defended the $1,450/oz level despite a U.S.-China trade deal appearing increasingly likely and unexpectedly strong U.S. jobs data,’ UBS analysts said in a note.”

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KITCO NEWS/Allen Sykora

Commerzbank: Loose monetary policy to lift gold in 2020

December 10, 2019

Loose Monetary PolicyGold should benefit from continued ‘ultra-loose’ monetary policy in 2020, rising to an average price of $1,550 an ounce in the fourth quarter of the New Year, Commerzbank said Tuesday. Silver and platinum are likely to ride the coattails of gold higher, analysts said. However, the bank looks for high-flying palladium to finally run into an ‘overdue correction’ and push lower. Gold has backed down from its September high just shy of $1,560 an ounce, but remains 14% stronger for the year, Commerzbank said.

This would be the strongest annual gain since 2010. The metal last traded at $1,465.80 an ounce. ‘We envisage an increase to $1,550 per troy ounce by the end of 2020,’ the bank said. ‘The high optimism among speculative financial investors and the subdued demand in Asia will initially preclude any higher prices, so we expect to see the lion’s share of the upswing in the second half of the year.’ Prospects for the yellow metal are ‘positive,’ the bank said. ‘Monetary policy pursued by the major central banks will remain ultra-loose next year,’ analysts said. ‘Admittedly, the Fed ruled out any further rate cuts. Still, they are not entirely off the table, and are still more likely than rate hikes.”

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MARKET WATCH/Sunny Oh

Wall Street players without access to Fed liquidity may feel pain if repo market seizes up at year end

December 10, 2019

Wall Street Feels Pain“By most accounts the Federal Reserve has moved aggressively to prevent the recurrence of strains in the multi-trillion dollar repo market, where banks and hedge funds borrow and lend funds on a short-term basis.  Yet for those who aren’t primary dealers and thus don’t benefit from the U.S. central bank’s regular injections of liquidity, the end of year could prove a treacherous period when short-term funding turns scarce according to market participants.  Banks across Wall Street typically pull back their lending at the end of the quarterly and yearly period to avoid receiving steep regulatory surcharges that demand too-big-to-fail financial institutions carry additional capital on their balance sheets.

‘Current open market operations in their current form are still not getting to those who still need term funding,’ said Nick Maroutsos, co-head of global bonds at Janus Henderson Investors, referring to repo funding contracts that extend beyond a day and which have been deployed by the Fed to help market participants get past the year-end hurdle. ‘The money is not getting where it needs to go,’ he said. Since September, the Fed has halted the shrinking of its balance sheet and has lent out billions of U.S. dollars through open market operations, parceling out cash in return for collateral in the form of U.S. Treasurys. These injections have helped keep a ceiling on overnight lending rates for the repo market which surged three months ago and prompted the central bank’s interventions.”

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CNBC/Jeff Cox

Credit Suisse shocking call: Fed will launch ‘QE4’ before year-end to stem Street cash crunch

December 10, 2019

“The Federal Reserve could be launching another round of money-printing in the next few weeks as problems in the overnight lending markets re-emerge and force the central bank into more aggressive action, according to Credit Suisse.  A fourth version of quantitative easing — often referred to as ‘money-printing’ for the way the Fed uses digitally created money to buy bonds from big financial institutions — would be needed by year’s end to bridge a funding gap as banks scramble for scarce reserves, Zoltan Pozsar, Credit Suisse’s managing director for investment strategy and research, said. ‘If we’re right about funding stresses, the Fed will be doing QE4 by year-end,’ Pozsar wrote. ‘Treasury yields can spike into year-end, and the Fed will have to shift from buying bills to buying what’s on sale – coupons.’

That would mean a shift from purchasing short-term Treasury debt and expanding into longer duration and more aggressive balance sheet expansion … ‘The Fed’s liquidity operations have not been sufficient to relax the constraints banks will face in the upcoming year-end turn,’ he said … ‘If carry makes the world go ’round, and reserves make carry possible … the day we run out of reserves would be the day when the world would stop spinning.’ Pozsar said. “No, this is not an overstatement.’”

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SOUTH CHINA MORNING POST/Anthony Rowley

A stock market correction – long overdue – will tip the global economy into a perfect storm

December 9, 2019

Stock Market Correction“Leading stock markets may finally be connecting with the real economy after a long period of in-denial euphoria. Even before US President Donald Trump signalled that trade wars may persist (only to be refuted by rumours of an imminent deal), there were signs that stock dumping might be imminent. After a  veritable frenzy of buying back their stocks, some big companies in the US and elsewhere are using their overvalued shares or ‘scrip’ as a currency to buy other companies that have real assets and earnings while the going is still (just about) good. This is an ominous sign.

Buying back shares made sense for firms with interest rates at record lows. It makes debt capital cheap and results in higher earnings for remaining shareholders. But a recent wave high-profile mergers and acquisitions (M&As) – including LVMH buying Tiffany and the Manchester City football club deal – with some financed by share exchanges, has been seen by some analysts as signalling the end of the bull market. When companies begin to buy competitors rather than invest in new, greenfield activity, and when they use their stocks to buy that growth, it signals diminishing confidence. It could also be a sign of an impending economic slump.”

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BLOOMBERG/Billy House

Democrats to Impeach Trump for Abuse of Power, Obstruction

December 10, 2019

Trump Impeachment“Democrats announced two articles of impeachment against President Donald Trump on abuse of power and obstruction, moving them another step closer to a historic vote by the full House next week. Judiciary Chairman Jerrold Nadler said Trump stands accused of ‘high crimes and misdemeanors’ under the Constitution by seeking foreign help for his re-election and engaging ‘in unprecedented, categorical and indiscriminate defiance’ of Congress’s investigation.

Nadler and Intelligence Chairman Adam Schiff delivered a compressed outline of their case Tuesday, arguing that Trump used his office to pressure the newly elected Ukraine president to announce politically motivated investigations for Trump’s personal, political benefit. ‘The evidence of the president’s misconduct is overwhelming and uncontested,’ Schiff said at the Capitol. It ‘goes to the heart’ of whether the U.S. can conduct a free and fair election in 2020, he added. Nadler said the Judiciary panel will take up the articles of impeachment later this week. That likely sets up a full House vote next week. The impeachment trial will be held in the Senate, where the Republican majority is expected to acquit him … The House impeachment inquiry, which Trump has labeled a witch hunt and Republicans derided as a rushed drive toward a predetermined conclusion, is reaching an end-of-the-year climax at the same time Congress is attempting to wrap up budget negotiations and push a major trade pact to conclusion.”

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