Gold holds near 2-week peak on stimulus hopes

Gold steadied near a two-week high on Tuesday as optimisim over the rollout of a COVID-19 vaccine countered the market impact of a subdued dollar and hopes for more fiscal stimulus.

Spot gold was little changed at $1,864.60 per ounce. Earlier, it touched its highest since Nov. 23 of $1,871.52. U.S. gold futures were up 0.2% to $1,869.40.

“We saw this washout in the gold price and break of technical levels. Now that it has recovered again in the same environment where real rates are coming under pressure, causing the dollar to weaken, this is normally an environment where gold prices increase,” said UBS analyst Giovanni Staunovo.

The dollar index held near 2-1/2 year lows, raising gold’s appeal for other currency holders. The U.S. Congress is expected to vote this week on a one-week stop-gap funding bill to provide more time to reach a deal on COVID-19 economic relief.

“In view of the persistently high numbers of new corona cases, which are resulting in tougher lockdowns (e.g. California, Germany), there is growing pressure on politicians to roll out further stimulus measures,” said Commerzbank analyst Carsten Fritsch in a note.

Gold is up about 23% this year, benefiting from its appeal as a hedge against inflation that could result from the unprecedented stimulus unleashed in 2020.

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CNN Business/Matt Egan
Trump regulators leave a warning for the Biden team

As they head out the door, Trump-led financial regulators are warning the incoming Biden team that a little-known yet critical corner of Wall Street is broken.

Their concern centers on the short-term funding market, which provides money to businesses, local governments and market players. When this market breaks down, the entire economy can screech to a halt.

That’s what happened during the 2008 financial crisis — and the pandemic caused it to collapse again.

Alarmingly, the short-term funding market imploded late last year and then again in March when the pandemic erupted — forcing the Federal Reserve to come to the rescue by pledging hundreds of billions of dollars of support.

“Recent events, including the financial fallout from the pandemic, have confirmed that potentially significant structural vulnerabilities remain” in short-term funding markets, the Trump-led Financial Stability Oversight Council (FSOC) warned late last week in its final annual report.

FSOC, created by the 2010 Dodd-Frank law, is a team of regulators from the SEC, Fed, FDIC and other agencies charged with identifying risks to the financial system. It’s chaired by Treasury Secretary Steven Mnuchin. Next year, assuming she’s confirmed by the US Senate, the council will be led by Janet Yellen, whom President-elect Joe Biden tapped as Mnuchin’s successor.

The FSOC is concerned enough about the liquidity issue that it called on regulators to study the short-term funding market and, “if warranted,” take “appropriate measures to mitigate these vulnerabilities.”

The council did not offer any potential solutions, however — leaving that task up to the incoming team.

“Our short-term markets don’t seem to be able to function without a very significant government backstop. We need to fix it,” said Jeremy Kress, a University of Michigan professor who researches financial regulation.

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Fox Business/Megan Henney
US economy at risk of ‘double-dip’ recession without additional coronavirus relief

The U.S. economy faces the risk of a double-dip recession if Congress fails to pass another round of emergency aid before the end of the year.

That’s according to a new analysis published by S&P economists, which argued that without additional stimulus measures amid a surge in COVID-19 cases, the GDP — the broadest measures of goods and services produced in the country — will almost certainly decline for two consecutive quarters, postponing a full recovery until the second half of 2022.

The U.S. has reported more than 14.8 million COVID-19 cases, the most in the world, and close to 282,000 deaths related to the virus.

“Since June, S&P Global Economics has said that it is not a far-fetched possibility that we could get a scenario of no more fiscal stimulus and a COVID-19 resurgence that cripples growth in the fourth quarter,” S&P chief economist Beth Ann Bovino wrote in the analyst note last week. “Unfortunately, this downside scenario seems more likely.”

To be loosely defined as a recession, a country needs two consecutive quarters of declines in real GDP. The National Bureau of Economic Research, a private organization of economists, describes it as “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Bovino wrote that the economy will likely shrink by 2.3% in the final three months of 2020, making the total decline 3.9% for the full year. If Congress does not pass a $1 trillion aid package, she wrote, the economic situation could become direr.

“On its own, a one quarter decline does not signal recession,” she wrote. “But it increases chances that the U.S. will see another downturn in the near future.”

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CNBC/Stephanie Landsman
Market sentiment is at dot-com-bubble euphoria levels due to vaccine optimism, investor Peter Boockvar warns

Investor Peter Boockvar warns bullishness is at dangerous levels.

He’s worried about investor optimism touching dot-com-bubble euphoria levels.

“Sentiment has gotten as ebullient as we’ve seen in early 2000,” the Bleakley Advisory Group chief investment officer told CNBC’s “Trading Nation” on Monday. “It’s all about that enthusiasm for stocks that should make somebody that is bullish call a time out.”

Boockvar cites the Citi Panic/Euphoria Model to support his case. It shows market euphoria, a contrary indicator, bouncing higher over the past couple of months.

“Sentiment is literally off the charts bullish,” said Boockvar, a CNBC contributor. “It typically means you are very, very vulnerable” to a market pullback.

Stocks ended Monday mixed. The tech-heavy Nasdaq, Russell 2000 and Dow Transports hit all-time highs. The broader S&P 500 and Dow closed lower, but they’re still near record highs.

Boockvar believes an inflation scare is the most likely driver to spark trouble.

“The 10-year [Treasury Note] yield is below 1%,” he said. “If you get a confirmed move above 1% in the 10-year, that would be the perfect catalyst to get a pullback in equity markets that would take out some of this froth and complacency.”

Boockvar, who has spent most of the year on inflation watch, predicts it’ll be the 2021 market story of the year.

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