REUTERS/ Asha Sistla

Gold slips as fresh hopes for U.S.-China deal boost stocks

November 19, 2019

“Gold fell on Tuesday, erasing gains from earlier in the session, as a temporary reprieve from Washington for China’s Huawei rekindled optimism for a trade deal and boosted risk sentiment. Spot gold was down 0.2% to $1,467.78 per ounce at 1228 GMT, reversing course from Asian trading hours, when prices rose to their highest since Nov. 7 at $1,475.40. U.S. gold futures fell 0.3% to $1,468.10 per ounce. ‘Stock markets are up, investors are less risk averse and prefer more risky assets against safe havens and that is also a factor,’ Quantitative Commodity Research analyst Peter Fertig said. ‘Gold is following closely the statements from the U.S. administration concerning negotiations with China.’

European share markets reached a four-year high as a new extension granted by Washington to let U.S. companies keep doing business with Chinese telecoms giant Huawei boosted bets that the world’s largest economies could reach a trade truce. However, some uncertainty prevailed, after a report on Monday suggested that the mood in Beijing was pessimistic about the prospects of sealing an agreement. Gold is also being pressured by a drop in oil prices, QCR’s Fertig said. Oil prices extended declines, pressured by an expected rise in U.S. crude inventories.”

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KITCO NEWS/Neils Christensen

There is still a case to hold gold as a strategic asset – Aberdeen Standard

November 19, 2019

Strategic Asset“Speculative interest in gold may have run its course, but investors shouldn’t completely disregard the precious metal even as record equity markets hog all the limelight, according to one market expert. Steve Dunn, head of exchange-traded products at Aberdeen Standard Investments, said in an interview with Kitco News that although investors are taking some profits in gold after the summer’s unprecedented rally, there is still a case for gold as part of a strategic allocation within a portfolio.

Dunn added that he sees a solid floor in gold with prices hovering between $1,450 and $1,500 an ounce for the rest of the year. ‘Money is flowing back into equity markets, but it’s a really good market that nobody likes,’ he said. ‘Investors are still concerned and desperate to protect their capital.’ The comments come as Aberdeen reported its strongest month of inflows into its suite of exchange-traded products, totaling 149 million. The firm’s gold ETF saw inflows of $95 million, representing nearly 64% of inflows last month. ‘Although gold continues to shine, we saw broad-based interest in all precious metals,’ he said.”

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Fed’s Williams says economy clearly facing several challenges

November 19, 2019

Economy Facing Challenges“The economy is clearly facing several challenges, primarily from overseas, but the three rate cuts since July should help sustain growth, said New York Fed President John Williams on Tuesday.

‘From the domestic point of view, things are strong and continue to be strong, but we’re dealing with various global factors we’re trying to navigate,’ Williams said, in a talk at a Sifma conference in Washington.  The U.S. economy is facing headwinds from slower global growth, uncertainty from trade and muted inflation pressures, Williams said.

As a result of these global factors, ‘growth is starting to slow in the U.S.,’ Williams said. The Fed’s three rate cuts since July were designed with these risks in mind and mean that policy is “well-positioned for a future that is uncertain,” Williams said. Fed Chairman Jerome Powell has signaled that Fed policy is on hold at least through the end of this year.  Williams said policy was ‘not locked in’ and would respond to the data going forward.”

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CNBC/Weizhen Tan

China is building up its ‘shadow reserves’ to counter its reliance on the US dollar

November 17, 2019

China Shadow Reserves “China is heavily exposed to the U.S. dollar, but now, with the risk of ‘decoupling,’ Beijing is silently diversifying its reserves to reduce its dependence on the world’s largest reserve currency, analysts say. Ongoing trade tensions with the U.S. has ‘increased the risk of a financial decoupling’ between the two largest economies, ANZ Research said in a recent report. The White House reportedly considered some curbs on U.S. investments in China such as delisting Chinese stocks in the U.S. Beijing will therefore manage its risk by diversifying its foreign exchange reserves into other currencies, ANZ predicted, as well as build up its ‘shadow reserves.’

‘Although China still allocates a high share of its FX exchange reserves to the USD … the pace of diversification into other currencies will likely quicken going forward,’ ANZ says in the report, adding that the share of the dollar in the country’s foreign exchange reserves was estimated to be around 59% as of June. Although the exact allocation of China’s foreign exchange reserves in different currencies isn’t known, ANZ told CNBC it believes those would include the British pound, Japanese yen and euro. Meanwhile, Beijing is gradually reducing its holdings of U.S. Treasurys, which it is heavily invested in — China was the largest foreign holder until June, when it was surpassed by Japan. Since peaking in 2018, China has reduced its holdings by $88 billion in the last 14 months, DBS said in a note. According to data from the U.S. Treasury department, China held $1.11 trillion of U.S. debt in June. At the same time, Beijing has been going on a gold buying spree, with its official gold reserves holding at record levels of 1,957.5 tons in October.

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Goldman Sachs charts show how hard trade war is hitting the US and China

November 19, 2019

Goldman Sachs 1The trade war is taking a massive toll – earlier this week, the World Trade Organization warned that global trade was stalling because of it. Goldman Sachs economists said the trade war was hitting China the hardest – mainly because of the drop in net trade. The bank does expect an ‘extended truce’ and sees the drag on growth waning next year, ‘assuming that tariffs stay at current levels through 2020.’ Still, the impact has been clear. Here are four charts showing the extent of the damage.

Goldman Sachs 2Through Goldman’s index on financial conditions, the data shows that conditions worsened through the trade war, with the divergence starting to widen around March 2018. Right now, it looks as if it’s only getting larger. Baidu, the Chinese internet and artificial-intelligence company, which also functions as a search engine, is a good measure for uncertainty, according to Goldman. As shown, there have been major spikes at crucial points in the trade war. While the US benefitted in terms of net trade, both sides suffered in terms of real income, financial conditions, and trade-policy uncertainty. Ultimately, it’s knocked off roughly 0.5% of US gross domestic product and 0.7% of China’s – China’s GDP growth earlier this year slowed to its lowest level since the ’90s. For both sides, the trade war is expected to be a substantial drag on GDP into 2020. China isn’t projected to recover until the second half of next year, and the US nearer to 2021.

Goldman Sachs 4




Goldman Sachs 5



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