Category: Gold

Gold Has Best Quarter in 25 Years

Gold is set to have its biggest quarterly advance since September 1990, Bloomberg noted.  Thanks Ms. Yellen!

From Bloomberg:

Gold headed for the biggest quarterly advance since September 1990 as demand for haven assets surged to make the metal this year’s best performing major commodity.

Bullion for immediate delivery rose 0.5 percent to $1,230.86 an ounce by 3:22 p.m. in Singapore, according to Bloomberg generic pricing. The metal is up 16 percent since the start of January in the first quarterly gain since June 2014.

Gold rallied this year as it cemented its status as a store of value amid financial market turbulence and concern about the global economy, which led to speculation that the Federal Reserve would pause on tightening monetary policy in the U.S. A gauge of the U.S. currency headed for the biggest quarterly loss since 2010 after Fed Chair Janet Yellen said Tuesday the central bank will act “cautiously” as it looks to withdraw stimulus. Investor holdings in exchange-traded products have expanded by about 300 metric tons this quarter, the most since March 2009.

“The dovish remarks by Yellen earlier this week which reinforced the Fed’s stance to proceed gradually and cautiously with rate hikes this year have weighed on the U.S. dollar index, which is a positive for gold,” Vyanne Lai, an economist at National Australia Bank Ltd., said by e-mail. “Investment demand for gold appears to be holding up.”

Yellen Gives Bulls Some Juice

Can you spot in the chart below where Fed Chairman Janet Yellen made dovish comments?

gld1

In her speech today, Yellen indicated the Fed should proceed “cautiously” as it looks to raise interest rates again.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy. This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric. If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy. By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero.”

Yellen also dismissed claims the Fed is out of bullets, saying even if rates return to zero the Fed has a ‘considerable scope’ to provide additional accommodation.

“One must be careful, however, not to overstate the asymmetries affecting monetary policy at the moment. Even if the federal funds rate were to return to near zero, the FOMC would still have considerable scope to provide additional accommodation. In particular, we could use the approaches that we and other central banks successfully employed in the wake of the financial crisis to put additional downward pressure on long-term interest rates and so support the economy–specifically, forward guidance about the future path of the federal funds rate and increases in the size or duration of our holdings of long-term securities. While these tools may entail some risks and costs that do not apply to the federal funds rate, we used them effectively to strengthen the recovery from the Great Recession, and we would do so again if needed.”

Calm Before the Volatility Storm?

BlackRock’s Global Chief Investment Strategist, Richard Turnill, warned that markets have become eerily quiet recently.  Now the firm is preparing portfolios for higher volatility.

U.S. equity market volatility is hovering around its lowest level since August 2015 and is well below its long-term average. This unusual calm follows declining market concerns about sliding oil prices, and the health of China’s economy and European banks. We do not expect this to last, and see a return to the higher-volatility regime that was the norm prior to QE.

The firm views Gold as a effective hedge if volatility spikes due to rising U.S. inflation fears.  They also like TIPS and similar instruments. Foreign-currency exposure can act as a diversifier as well.

 

Gold Near-Term Weakness Could Present Buying Opportunity – UBS

UBS thinks some gold buyers have gotten ahead of themselves and some near-term price consolidation could be in store.  That said, downside will likely be contained and could present a buying opportunity.

In the firm’s view, the price of gold is dictated primarily by safe-haven investment demand and inflation hedging.  They believe the direction of the gold price will be a function of investor belief in the two dominant opposing narratives that we see in the market today: Continue reading “Gold Near-Term Weakness Could Present Buying Opportunity – UBS”

PIMCO Warns Against ‘Helicopter Money’

PIMCO’s Andrew Bosomworth discussed how monetary policy is divided into three phases: conventional, unconventional and monetisation.

  • Conventional: policy rate changes, liquidity provision, reserve requirements
  • Unconventional: negative interest rates, large-scale asset purchases
  • Monetisation: full subordination to fiscal policy, helicopter money

Obviously, currently the ECB is in the unconventional phase and the U.S. Fed is trying to get back to the Conventional phase.

While unconventional methods appear to be ‘pushing on a string’ to create the right amount of inflation for a ‘beautiful deleveraging’, Bosomworth warns against monetisation, or ‘helicopter money.’

Continue reading “PIMCO Warns Against ‘Helicopter Money’”

Dollar Gains for Fifth Session on Tough Fed Talk

Oh that pesky dollar… With tough talk out of fed heads this week, that they could be raising rates again as soon as April, the dollar is higher for the fifth consecutive day against a basket of major currencies.

DOLLAR

Dollar strength is impacting oil, gold and other commodities as well as the broader equity market.

The implied probability of a rate hike at the Fed’s April 27th meeting jumped to 13.9% from 11.5% the prior day, according to the CME Group’s FedWatch tool. It was at just 1.9% last month.

fedprobablity032416

 

 

Deutsche Bank: Commodity Rally Won’t Last

Deutsche Bank believes the year-to-date commodity price rally appears to be driven by incrementally positive data from China and a weaker USD.  They don’t expect this trend to continue and still believe supply cuts across most commodities are required.

They remain concerned that supply cuts may now take longer, with improving options for marginal producers in the last three-months, and capacity reductions grind slower-than-expected on competing stakeholder interests and high barriers to exit.

Continue reading “Deutsche Bank: Commodity Rally Won’t Last”