December 20, 2019

“Gold edged lower in range-bound trade on Friday, pressured by increased risk appetite on hopes of an interim Sino-U.S. deal, while investors awaited U.S. GDP data for fresh cues on the state of economy. Treasury Secretary Mnuchin said on Thursday the United States and China would sign their so-called Phase one trade pact at the beginning of January, adding that it would not be subject to any renegotiation. Spot gold fell 0.1% to $1,477.95 per ounce by 0808 GMT.

‘The real driver for gold markets has been trade-war risk and with its de-escalation in phase one on the back of Mnuchin’s comments is not bullish for gold,’ said Stephen Innes, a strategist at AxiTrader. China’s finance ministry unveiled a new list of import tariff exemptions for a duration of one year starting Dec. 26 for chemical and oil products from the U.S. The easing of the trade dispute boosted share markets. The dollar was steady, as it was set to gain for the first week in four, supported by better-than-expected U.S. economic data. The initial U.S. jobless claims report was strong with applications for unemployment benefits slipping from a more than 2-year high.”

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MARKET WATCH/Jeffry Bartash

Third-quarter GDP left at 2.1% — stronger consumer spending offset by weaker business investment

December 20, 2019

Stronger Consumer Spending“The pace of growth in the U.S. economy was left at 2.1% in the third quarter, as strong consumer spending was offset by weaker business investment in inventories, in the final estimate from the Commerce Department on Friday. The data showed frothier consumer spending than previously reported in the period running from July to September, but the increase in inventories, or unsold goods, was also marked down to leave GDP unchanged.

The increase in consumer spending, the main engine of U.S. economic growth, was raised to a 3.2% annual pace from 2.9%, which was not quite as strong as the second quarter’s heady 4.6% rate but still very robust.  Americans spent more in the third quarter on services such as financial advice and personal care, revised figures show. Business investment didn’t decline quite as much as the earlier estimates revealed, but it was still negative. Investment in structures fell 2.3% vs. a prior 2.7%. The decline in spending on equipment was lowered to 9.9% from 12%. More notably, the change in the value of inventories was reduced to $69.4 billion from a previous $79.8 billion.”

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KITCO NEWS/Neils Christensen

Inflation garners little attention for 2020, but gold market is watching

December 19, 2019

Inflation for 2020“There is a global push under way to drive inflation higher and while that could be good for gold, it is not clear central banks will achieve their goal. In his last press conference of 2019, Federal Reserve Chair Jerome Powell made a bold statement, noting that inflation hasn’t hit the central bank’s 2% target since he joined the board of governors in 2012. But by the Federal Reserve’s own estimates, 2020 might be the year that Powell sees the central bank reach its goal. In its December projections, the Federal Reserve looks for inflation to rise 1.9% next year. However, even by Powell’s admission, the Fed’s outlook won’t be enough to force a shift in its firmly neutral stance.

‘In order to move rates up, I would want to see inflation that’s persistent and that’s significant—a significant move-up in inflation that’s also persistent before raising rates to address inflation concerns,’ he said. While the Federal Reserve is hoping to reach its inflation target next year, another central bank is less optimistic. In its December projections, the European Central Bank downgraded its inflation forecast to 1% for next year, down a tick from its previous estimate of 1.1%. However, newly minted ECB President Christine Lagarde said that the central bank is confident that its loose monetary policy will eventually drive inflation higher. For most economists, inflation has been at most a back-burner issue, not a significant factor in U.S. economic activity. In their 2020 outlook, economists at Bank of America Merrill Lynch said that they see inflation pushing to 2% next year as the U.S. economy posts growth of 1.7%.”

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BLOOMBERG/Sarah Ponczek

Maybe It’s Time to Start Worrying About Euphoria in U.S. Stocks

December 20, 2019

Start Worrying About Stocks“Mom and pop are rushing back to risk. The ultra-rich want in. Positioning in bellwether mutual funds has virtually never been so bullish. This as the S&P 500 has surged 11% in less than three months. Word is getting around about stocks, music to the ears of anyone who sells or manages them. But if you’re the type of market contrarian who thinks a better backdrop for gains is gloom, all the elation is worrying.

‘Investors jump on momentum and ride the rally and then become convinced that it’s going to continue forever,’ said Aron Pataki, a portfolio manager at Newton Investment Management, with $62 billion in assets. ‘Typically, there is euphoria before pullbacks.’ Not that enthusiasm isn’t warranted. The S&P 500 is up 30% this year with dividends. People who stress about euphoria can sound like they’re complaining about a rising market. It’s just that over the long term, enthusiasm hasn’t been the fuel that drove U.S. equities to a $25 trillion bull run. The latest survey of fund managers from BofA Global Research showed ‘the bulls are alive,’ according to a report. Expectations for global economic growth jumped the most on record, while investor allocations to equities rose to the highest level in a year. Meanwhile, the firm found cash levels among those surveyed are the lowest in six years.”

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MARKET WATCH/Chris Matthews

Most stock investors think the Fed has restarted emergency stimulus, despite denials, says RBC survey

December 19, 2019

Emergency Stimulus“Investors don’t think the Federal Reserve is being straight with them, according to a survey published Wednesday by RBC Capital Markets. In October, the Federal Reserve announced it would expand its balance sheet by purchasing U.S. government debt from major banks, in exchange for newly created bank reserves, but has been eager to tell markets that this action is not a resumption of quantitative easing (QE) — its post-crisis program of purchases of long-term government debt and mortgage bonds meant to stimulate economic growth and avoid deflation.

‘I want to emphasize that growth of our balance sheet should in no way be confused with the large-scale asset purchase program that we deployed after the financial crisis,’ Fed Chairman Jerome Powell said in October.  Powell said that because the balance sheet expansion will only involve the purchase of short-term securities, and is aimed at managing the level of bank reserves in the financial system rather than pushing down long-term interest rates, the actions should be seen as a simple extension of the Fed’s day-to-day market operations. But investors are not heeding this advice, according to RBC’s December survey of institutional investors, with 52% of those surveyed saying that the Fed’s action is ‘effectively a form of QE,’ while only 19% agreed with Powell’s description of the program and 23% said they don’t know.”

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SOUTH CHINA MORNING POST/Nicholas Spiro

US-China trade deal and Boris Johnson’s election victory in Britain have stock market bulls cheering, but for how long?

December 20, 2019

Trump and Johnson“Judging by the recent performance of the MSCI All-Country World Index, a gauge of stocks in developed and developing economies, investor sentiment has been given a significant boost by the majority secured by the ruling Conservative Party in Britain’s parliamentary election and the signing of a ‘phase one’ trade deal between Washington and Beijing. The index has hit a record high, surpassing its January 2018 peak before an outbreak of volatility sent equities tumbling. Over the past several weeks, mounting expectations of a reduction in political risk in Britain and a de-escalation of US-China trade tensions have contributed greatly to a surge in optimism in markets.”

“At a time when investors are looking for reasons to take on more risk – in stark contrast to a year ago when pervasive fears about growth and tariffs caused equity markets  to plummet – the latest developments in British politics and the trade war give the bulls reason to cheer. However, any rally that has its roots in an extremely volatile, politically driven and protracted negotiation process, such as Brexit and the trade conflict, is inherently unsustainable. On Tuesday, the pound came under pressure again as Johnson’s government signalled it would enact legislation that would preclude it from prolonging the transition period covering trade relations with the EU beyond the December 2020 deadline, setting the stage for another ‘cliff-edge’ Brexit in 12 months.”

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