Gold nears 7-year peak on virus economic impact; palladium hits record
February 19, 2020
“Gold climbed towards a seven-year peak on Wednesday as concerns over the global economic impact of the coronavirus epidemic boosted safe-haven interest, while palladium resumed its record rally driven by concerns over a supply shortfall. Spot gold rose 0.5% to $1,609.63 per ounce by 1057 GMT. The metal jumped to $1,610.72 earlier, its highest since Jan. 8, when gold hit its highest in nearly 7 years.
‘We’re still concerned that the recovery of economic activity might take a little bit longer in China,’ Julius Baer analyst Carsten Menke said. ‘On the ground, the impact seems to be stronger than what’s currently reflected in the stock markets, gold investors are taking a closer look at these developments that’s why prices are higher.’ Bullion held firm even as European shares hit a fresh record high on a decline in new cases of coronavirus in China, and as the dollar rose to a more than four-month high against rivals. Markets were alarmed on Tuesday after iPhone maker Apple Inc warned that its sales might fall because of slow ramp-ups in manufacturing facilities in China. Gold in euros hit an all-time peak of 1,491.01 euros per ounce.”
Palladium hits record high; ‘madness’ continues in tight market
February 19, 2020
“Palladium prices continued their relentless charge uphill Wednesday, shattering their old record high in a market that remains tight due to strong auto-related demand, analysts said. Or, as Commerzbank analyst Daniel Briesemann put in, ‘the madness on the palladium market continues.’ Spot palladium traded as high $2,829.75 an ounce, meaning that at the peak, the metal was roughly $275 above the old record high hit last month. At the fresh all-time high, palladium was already up 46% for the year to date.
Spot palladium has been roughly $1,800 more expensive than sister precious metal platinum and roughly $1,200 more expensive than gold. ‘Never before has the price gap between palladium and these two precious metals been so wide,’ Briesemann said. A U.S. trader in the physical market said the supply tightness is continuing. Still, he said, a $200 move overnight is almost unprecedented, particularly considering the ongoing worries about the coronavirus that has at times dinged risk sentiment and industrial base metals. ‘Right now, it’s the same story as the last couple of weeks – the physical market is undersupplied and tightness is persisting,’ he said.”
Citi sees gold topping $2,000 in next 12 to 24 months
February 19, 2020
“As the record bull market stretches on, and as the coronavirus outbreak incites fears of a potential slowdown in global growth, gold could be a way for investors to hedge risks to the downside, Citi said Wednesday. The firm believes market jitters will prompt investors to pile into the so-called safe haven asset, pushing gold prices to $2,000 per ounce in the next 12 to 24 months. ‘Gold should perform as a convex macro asset market hedge, resilient during ongoing risk market rallies but a better hedge during sell-offs and vol spikes,’ the analysts led by Ed Morse said.
On Tuesday, gold settled above the $1,600 mark for the first time since April 2013, as investors reacted to Apple’s announcement that it would miss quarterly revenue forecasts due to constrained worldwide supply of iPhones, as well as lower Chinese demand stemming from the virus outbreak. Shorter-term, Citi lifted its six-to-12 month target on gold to $1,700 per ounce. Morse said that the bullish activity in gold this year indicates growing investor concern over the business cycle, as well as ongoing uncertainties surrounding the U.S.-China trade war and the upcoming U.S. election. He said the economic backdrop is also supportive for gold since it tends to do well in a low interest rate environment as investors look for yield. ‘With STIR [short-term interest rate] markets pricing in ~1.5 Fed cuts in 2020 and global growth risks skewed to the downside, gold is a direct beneficiary of the low nominal and negative real yield environment,’ Morse said, while adding that gold can also ‘outperform on a risk market unwind should coronavirus risks impact supply chains.”
MARKET WATCH/Nouriel Roubini
Here’s all the things likely to go wrong, according to Nouriel Roubini
February 19, 2020
“In my 2010 book, ‘Crisis Economics,’ I defined financial crises not as the ‘black swan’ events that Nassim Nicholas Taleb described in his eponymous bestseller, but as ‘white swans.’ According to Taleb, black swans are events that emerge unpredictably, like a tornado, from a fat-tailed statistical distribution. But I argued that financial crises are more like hurricanes: they are the predictable result of built-up economic and financial vulnerabilities and policy mistakes. There are times when we should expect to reach a tipping point — the ‘Minsky Moment’ — when a boom and a bubble turn into a crash and a bust. Such events are not ‘unknown unknowns,’ but rather the ‘known unknowns.’
Financial markets remain blissfully in denial of the many predictable global crises that could come to a head this year, particularly before the US presidential election … Beyond the usual economic and policy risks that most financial analysts worry about, a number of potentially seismic white swans are visible on the horizon this year. Any of them could trigger severe economic, financial, political, and geopolitical disturbances unlike anything since the 2008 crisis. The United States is locked in an escalating strategic rivalry with at least four implicitly aligned revisionist powers: China, Russia, Iran, and North Korea. These countries all have an interest in challenging the U.S.-led global order, and 2020 could be a critical year for them, owing to the U.S. presidential election and the potential change in U.S. global policies that could follow.”
THE WALL STREET JOURNAL/Nick Timiraos
Fed Minutes Could Provide Clues on Economic Outlook, Balance Sheet
February 19, 2020
“The Federal Reserve releases the minutes of its Jan. 28-29 meeting on Wednesday at 2 p.m. EST, which are expected to shed light on how central bank officials considered their approach to interest rates last month. Officials voted to hold their benchmark rate steady in a range between 1.5% and 1.75% at the meeting after cutting the rate three times last year. Here’s what to watch for … Financial markets started 2020 ebullient due to a trade truce between the U.S. and China and glimmers of firmer global manufacturing activity. But fears about China’s coronavirus outbreak reignited global growth worries in the week or so before the Fed’s January meeting.
The minutes, released with their customary three-week delay, won’t reveal officials’ most recent thinking on how they might react if the global economy slows because of quarantines within China and suspended air travel in and out of the country. Fed Chairman Jerome Powell told congressional lawmakers last week the central bank was ‘carefully monitoring’ the situation, singling out a risk that makes it more likely to lower interest rates than to raise them. Central bankers around the world moved aggressively last year to provide stimulus to cushion the global economy from slower growth amplified by trade tensions. So far this year, they have signaled caution about how and when they might take action in response to a coronavirus-related slump in global activity and demand. The minutes could show whether officials revised their outlook for inflation in the coming year. The central bank was surprised last year by a downward drift in its preferred inflation gauge below the Fed’s 2% target, though other measures show somewhat firmer price pressures.”
FOX NEWS/Tyler Olson
Sanders takes double-digit lead in new poll, Biden crumbles, Bloomberg rises
February 19, 2020
“Sen. Bernie Sanders of Vermont is out to a double-digit lead in a new national Democratic presidential primary poll released Wednesday morning as he has seen his electoral stock rise, while former Vice President Joe Biden’s poll numbers are tumbling and former New York City Mayor Michael Bloomberg is surging. Sanders garnered 32% support in the ABC News/Washington Post poll, followed by Biden at 17% and Bloomberg at 14%.
Sanders has been boosted by a win in the New Hampshire primary and at least a top-two finish in the yet-to-be-called Iowa caucuses, while Biden is still counting on his South Carolina firewall to hold after middling finishes in both states. The trio is trailed by Massachusetts Senator Elizabeth Warren at 11%, the only other candidate reaching double-digits in the poll … Bloomberg, whose 14% total in Wednesday’s poll is up from 8% in January, has seemed to poach moderate Democrats from Biden’s camp with his huge advertising budget, spending upwards of $400 million so far.”