December 17, 2019

“The gold market continues to trade in a tight range seeing little reaction to growing momentum in the U.S. housing sector.  U.S. housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units in November, the Commerce Department said. Consensus forecasts called for starts to be around 1.34 million. October’s data was upwardly revised to 1.323 million units. For the year, housing starts are up more than 13%, compared to November 2018 levels. At the same time, building permits data, which is a precursor to future projects, was up 1.4% at 1.482 million last month, up from October’s revised level of 1.461 million. Economists were expecting to see 1.41 million permits. Building permits are up 11% from last year.

With most traders and investors looking ahead to the holiday season, gold is seeing little reaction to economic data. February gold futures last traded at $1,481.70 an ounce, relatively unchanged on the day.  Katherine Judge, senior economist at CIBC, said that more positive data in the housing market will continue to ease slowdown fears. ‘With homebuilder confidence at its highest level in over two decades amidst lower interest rates, and a strong labor market, residential investment should contribute to growth in the US in the first quarter,’ she said.”

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FORBES/Simon Constable

Gold Headed To $1,700 By March, Analysts Say

December 16, 2019

Gold Up By March“Get ready for a fast and sizable pop in gold prices.  The cost of buying one troy ounce of the metal will likely rise by around 15% over the next couple of months, analysts say. The reason gets to the heart of how prices of financial assets move over time. They go up, and they go down in somewhat predictable patterns, at least for those who know. In the case of gold, the price fell from $1,546 a troy ounce in September down to $1,455 on November 12, according to data from the London Bullion Market Association. The SPDR Gold Shares (GLD) exchange-traded fund, which holds bars of solid bullion, performed similarly.

Since then, the gold price has mostly moved broadly sideways, but is now beginning to turn upwards once again and should continue to rally over the next few weeks. ‘Gold got very overbought into late August / early September, and since then it corrected its overbought reading,’ states a recent report from Wolfe Research by John Roque and his colleague Rob Ginsburg. They are technical analysts who read charts to forecast where asset prices may move next.”

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BARRON’S/Steven M. Sears

Gold Has Taken a Beating — but Hasn’t Lost Its Shine. How to Play a Rally.

December 17, 2019

Gold Takes a BeatingGold is back. Despite what you may have read in recent days about gold’s price decline, institutional investors are aggressively positioning for the yellow metal to rally through summer since the Federal Reserve recently indicated that it was pausing future rate hikes. Since last week’s meeting of the Fed’s interest-rate setting committee, investors have rushed into the sector and aggressively established large positions in response to the Federal Reserve confirming what everyone already knew—it is unlikely to raise interest rates anytime soon.

This enhanced clarity sparked a push into many so-called risk assets, including gold, that benefit from low rates and an emaciated U.S. dollar. Some notable precious metal trades included the purchase of 15,000 SPDR Gold Shares (ticker: GLD) December $142 calls, and 20,000 VanEck Vectors Gold Miners ETF (GDX) June $30 calls, and a 50,000 ‘call spread’ that entailed buying the GDX March $30 calls and selling the GDX March $33 calls. The gold miners trade, in particular, is audacious. The exchange-traded fund is up about 31% this year, and the trade proves profitable if the fund moves into a new, higher trading range by March. During the past 52 weeks, GDX has ranged from $19.90 to $30.96. The interest in gold reflects the reality that precious metals benefit from low interest rates and a weak dollar. Inexpensive money also aids many so-called risk assets, ranging from stocks to emerging market debt, which is probably the most extreme destination on the risk curve.”

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CNBC/Weizhen Tan

Chinese corporate debt is the ‘biggest threat’ to the global economy

December 17, 2019

Chinese Corporate Debt“Chinese corporate debt is the ‘biggest threat’ to the global economy, warned a Moody’s Analytics economist, who described such risks as a ‘very significant fault line.’ That followed similar comments by Fitch Ratings last week, which said that private companies in China have defaulted on their debts at a record pace this year. While corporate debt is a ‘fault line in the financial system and the broader economy,’ Moody’s Chief Economist Mark Zandi flagged indebted Chinese companies as the larger risk. ‘I would point to Chinese corporate debt as the biggest threat,’ he said, adding that it’s growing very rapidly in China.

Zandi explained that many companies are struggling to deal with a slowdown in growth stemming from the trade war and other factors. ‘In the United States, it’s similar kind of picture — not to the same degree — but we have seen very significant increase in so-called leveraged lending, as in lending to highly indebted companies, and they are vulnerable if the economy were to slow,’ Zandi said. Debt has been a problem in the world’s second largest economy, which has been trying to reduce its reliance on it by tightening regulations to speed up deleveraging — or the process of reducing debt. However, the trade war is putting a dent in its efforts to pare its massive debt levels as China seeks ways to boost its slowing economy, which has been hit by U.S. tariffs. The country has this year more or less paused its deleveraging efforts and put in place more stimulus.”

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MARKET WATCH/Mark DeCambre

Why Wall Street sees the stock market on the verge of a ‘melt-up’

December 17, 2019

Wall Street Melt Up“Is the stock market on the brink of breaking into an unmitigated run-up to fresh records? That is the question a number of market strategists are exploring as the Dow Jones Industrial Average the S&P 500, and the Nasdaq Composite indexes mount their latest concerted assault on all-time closing highs, powered by hope that the U.S. and China can forge a preliminary trade accord to resolve a prolonged battle over import duties. A number of other geopolitical headwinds, at least momentarily, have died down, including concerns about market-roiling effects of uncertainty surrounding the Byzantine pathway toward a U.K. exit from the European Union.

Analysts at Bank of America Merrill Lynch, led by strategists Michael Hartnett, described the market as ‘primed for Q1 2020 risk asset melt-up,’ with the Federal Reserve and the European Central Bank still providing ample support to portions of the market and economy that have shown some signs of softness.  UBS Global Wealth Management Chief Investment Officer Mark Haefele said that a partial Sino-American trade resolution contributes mightily to the bullish thesis that a number of strategists have adopted. ‘This could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment,’ Haefele wrote … It is important to note that a so-called melt-up is considered by market pundits as the end phase of an asset bubble and is usually, but not always, followed by a significant downturn in stock values … some analysts are pointing to growing signs that Wall Street investors are becoming overcomplacent about market buoyancy.”

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BLOOMBERG/Mark Gilbert

Negative Interest Rates Are Destroying Our Pensions

December 16, 2019

Negative Interest Rates Destroy Pensions“It’s becoming increasingly apparent that the negative interest rates introduced in several countries in the wake of the global financial crisis are trashing bank profitability. Less obvious, are their debilitating impact on pension plans. And that’s why the days of sub-zero borrowing costs may be drawing to a close. Sweden’s central bank is poised to abandon the negative interest rate policy it’s pursued for half a decade by increasing its policy rate to zero even though inflation is expected to remain stubbornly below target for years to come.

Riksbank Governor Stefan Ingves has said negative rates were always meant to be ‘a temporary measure,’ and that the central bank would ‘probably’ raise borrowing costs when it meets on Thursday … The emergency measures introduced to resuscitate growth, including central banks expanding their balance sheets by embarking on quantitative easing, were supposed to be transient. Instead, they’ve become fixtures of the economic firmament. It’s been disastrous for pension plans. A 1% decline in interest rates increases calculated pension liabilities by about 20%. It reduces the funding ratio, which measures a pension provider’s ability to meet its future commitments, by about 10% … With about $11.7 trillion of the world’s debt yielding less than zero, the funds that run pension plans are anticipating meager returns from the assets they manage.”

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