Gold slips on strong Chinese data, palladium soars to new record
December 2, 2019
“Gold prices fell on Monday after better-than-expected manufacturing data from China assuaged fears of a slowdown in global growth while deficit-ridden. Auto-catalyst metal palladium soared to an all-time high. Spot gold slipped 0.4% to $1,457.96 per ounce by 1310 GMT. U.S. gold futures fell 0.6% to $1,463.80 per ounce. Data showing growth in factory activity during November in China, the world’s second-largest economy and biggest gold consumer, pushed up equity markets.
‘At least in the short-term, this kind of data will keep gold prices in check,’ said Julius Baer analyst Carsten Menke. Gold is considered a safe store of value at times of political or economic uncertainty. Demand for the metal was further pressured by the rising dollar, making dollar-denominated bullion more expensive for buyers using other currencies. On the U.S.-China trade front, reports said a preliminary agreement has now stalled because of U.S. legislation supporting protesters in Hong Kong and Chinese demands that Washington roll back its tariffs. Gold has risen more than 13% this year mainly due to the trade dispute driving demand for safe assets.”
KITCO NEWS/Anna Golubova
Gold prices to peak at $1,500 in 2020, Fed to play key role – ING
November 29, 2019
“Gold prices will remain supported throughout next year because of uncertainty surrounding trade and global growth, said ING in its 2020 Commodities Outlook. The Dutch bank’s price forecast has gold trading well above its new floor of $1,450 an ounce throughout 2020 but does not see it rise much above $1,500 an ounce. ‘Looking to 2020 … uncertainty around trade talks and global growth are likely to remain key drivers,’ ING head of commodities strategy Warren Patterson and senior commodities strategist Wenyu Yao said. In Q1, the bank has gold averaging at $1,500 an ounce, then dropping to $1,470 in Q2 and Q3, and finally rising to $1,480 in Q4.
‘We currently forecast that gold prices will average around US$1,475/oz over the course of 2020,’ ING stated. Gold’s further upside potential will depend on how dovish the Federal Reserve chooses to be next year, the strategists added. ‘As a result of trade uncertainty and concerns over global growth, we do see upside to gold prices from current levels. While if the U.S. Fed turns increasingly more dovish, this only provides further upside,’ they said. The 2020 outlook is based on the yellow metal’s solid performance this year, which saw prices rise as much as 21%, the report said.”
The Way Out for a World Economy Hooked on Debt? More Debt
December 1, 2019
“Zombie companies in China. Crippling student bills in America. Sky-high mortgages in Australia. Another default scare in Argentina. A decade of easy money has left the world with a record $250 trillion of government, corporate and household debt. That’s almost three times global economic output and equates to about $32,500 for every man, woman and child on earth.
Much of that legacy stems from policy makers’ deliberate efforts to use borrowing to keep the global economy afloat in the wake of the financial crisis. Rock bottom interest rates in the years since has kept the burden manageable for most, allowing the debt mountain to keep growing. Now, as policy makers grapple with the slowest growth since that era, a suite of options on how to revive their economies share a common denominator: yet more debt. From Green New Deals to Modern Monetary Theory, proponents of deficit spending argue central banks are exhausted and that massive fiscal spending is needed to yank companies and households out of their funk. Fiscal hawks argue such proposals will merely sow the seeds for more trouble. But the needle seems to be shifting on how much debt an economy can safely carry. Central bankers and policy makers from European Central Bank President Christine Lagarde to the International Monetary Fund have been urging governments to do more, arguing it’s a good time to borrow for projects that will reap economic dividends.”
A key manufacturing index shows the U.S. remains in contraction territory
December 2, 2019
“Manufacturing activity continued to lag in November amid a lag in inventories and new orders, according to the latest ISM Manufacturing reading released Monday. The reading came in at 48.1 vs. an expectation of 49.4 and the previous month’s reading of 48.3. Though the ISM reading is usually reported as a simple number, it actually denotes the percentage of manufacturers planning to expand operations. A reading below 50 represents contraction; November was the fourth straight month below the expansion level.
New orders slumped to 47.2, down 1.9 percentage points from October’s 49.1. Inventories, which are a key input for gross domestic product, came in at 45.5, down 3.4 points from the previous month.
The numbers come amid speculation about the pace of U.S. growth. Recession worries have ebbed from earlier in the year, when the Treasury yield curve was inverted and flashing what has been a reliable 12-month recession indicator for the past 50 years. GDP growth has averaged around 2.4% in 2019, with the third quarter coming in at 2.1%. However, most forecasters expect the fourth quarter to come in under 2%. Manufacturing is considered a reliable bellwether for how the rest of the economy is doing, though it comprises only about one-fifth of GDP. Nearly all of the key ISM indicators were at contraction levels in November. Employment was at 46.6, down 1.1 point for the month, while export orders fell 2.5 points to 47.9 as the U.S. and China continue to look for a resolution to a trade dispute that began more than a year and a half ago.”
FINANCIAL TIMES/George Parker
Is Boris Johnson heading for another Brexit crisis?
December 2, 2019
“Boris Johnson’s promise to ‘Get Brexit Done’ has proved a powerful election slogan, but the prime minister’s critics claim it masks the fact that if he wins the election Britain faces a tough and potentially humiliating trade negotiation with the EU. Michael Heseltine, former deputy prime minister, called it ‘the great delusion’, while Ivan Rogers, Britain’s former ambassador to the EU, warned last week of ‘the crisis that is likely to confront us at the Christmas yet to come — Christmas 2020’.
Mr. Johnson and fellow ministers have so far brushed aside any idea that a post-Brexit trade deal with the EU would be anything other than simple. ‘Most of the work has already been done,’ chancellor Sajid Javid claimed. But by insisting that a deal must be done by December 2020, Mr. Johnson has set a highly ambitious — some say impossible — timetable for talks. His critics claim Britain is heading for another economic and political Brexit crisis if he is returned to Downing Street …
Unless Britain agrees to extend the transition period — possibly precipitating a political crisis for Mr. Johnson — it could instead face an economic crisis if it left the EU without a trade deal and defaulted to basic World Trade Organization rules. Mr. Johnson has refused during the election campaign to countenance a ‘no deal’ exit from the transition in December 2020 … a WTO exit would see the erection overnight of new trade barriers, quotas and tariffs. Mr. Johnson has instead simply insisted the deal will be done. ‘Not perhaps the most compelling argument,’ said Lord Heseltine drily.”
THE WALL STREET JOURNAL/Paul Kiernan
U.S. Dominance in Global Services Economy Weakens
December 2, 2019
“Over the past half-century, the U.S. has evolved from an industrial superpower into the undisputed champion of the global services economy. From 2003 to 2015, the U.S. trade surplus in services such as medical care, higher education, royalties and payments processing nearly sextupled to $263.3 billion. Growth has since stalled, however. Exports of services barely rose in the first nine months of 2019, while imports increased 5.5%. The services surplus, at $178.5 billion through September, was down 10% from a year earlier, on pace for its steepest annual decline since 2003.
Some of the softness in service exports likely reflects cyclical factors, such as a strong dollar or slowing foreign economies. But economists say the decline in the surplus is difficult to pin exclusively on such issues. They point to other forces—some political, others more tectonic—that are weighing on exports while prompting American consumers and companies to buy more foreign services. Much rides on whether this trend continues or reverses. While trade surpluses or deficits aren’t intrinsically good or bad, they reflect a country’s comparative advantages in the global economy. The U.S.’s prowess in academia, tech, finance and consulting creates millions of jobs, often high-skilled, and effectively helps pay for imports of merchandise such as smartphones, cars and wine. ‘It goes to the heart of what the U.S. is really good at,’ said Michael Pearce, an economist at Capital Economics. ‘These are all areas in which the U.S. is a world leader, and it’s also what drives more fundamental, supply-side growth in the economy.’”
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