Key Releases

 

United States of America

 

The US currency today is weakening against the pound and the euro but is moderately strengthening against the yen.

 

Today, investors are focused on the publication of data on initial jobless claims and negotiations on a new stimulus package for the US economy. The number of initial jobless claims was 963K, falling below 1 million for the first time since March 21, despite the second wave of the coronavirus epidemic. These data give investors hope for the continued recovery of the labor market. However, they remain preoccupied with the stalemate in congressional talks on an economic support package. Yesterday, the leader of the Democrats Nancy Pelosi said that the parties seriously disagreed in their positions, and Finance Minister Steven Mnuchin accused the Democrats of not being ready to compromise. These comments give the market little hope of reaching an agreement in the near future. Investors are also alarmed by the further aggravation of relations between the United States and China. Today, US Secretary of State Mike Pompeo hinted at further actions by the administration against the Chinese apps, saying Donald Trump’s decrees could be directed not only against TikTok and WeChat.

 

Eurozone

 

Today, the euro is strengthening to the US dollar and the yen but is moderately weakening to the pound.

 

Released today, data on the consumer price index in Germany for July confirmed the negative market forecasts. MoM, the indicator was −0.5%, and YoY, at −0.1%. However, investors remain optimistic as US President Donald Trump has decided not to temporarily raise overall import tariffs for EU goods. The United States has this right after the WTO decision, which found the European Union guilty of illegally subsidizing Airbus. The tariffs were increased only for certain European products, for example, for French jams. Experts believe Trump is not raising overall tariffs for political reasons. Such an action could put pressure on the purchasing power of the population and negatively affect the mood of citizens before the presidential elections.

 

United Kingdom

 

The British pound today is generally strengthening to the main competitors– the US dollar, the yen, and the euro.

 

In the absence of important macroeconomic releases, the movement of the pound is of technical nature. It is only worth noting that the UK continues to try to conclude trade deals with various states, which will have to enter into force after the UK finally leaves the EU. To date, the government has managed to negotiate 20 deals with 50 countries, but membership in the European Union gave it the right to trade duty-free with 70 countries. Yesterday, the representatives of New Zealand said that they are disappointed with the course of trade negotiations with the UK and may not have time to agree on a deal before the end of the year.

 

Japan

 

The Japanese yen is weakening today against its main competitors – the euro, the pound, and the US dollar.

 

In the absence of important macroeconomic releases, JPY movement is of technical nature. However, the July corporate goods price index was above the market expectations. MoM, the indicator remained at 0.6% instead of falling to 0.3%, and YoY, it increased from −1.6% to −0.9%. We should also note that the Japan Center for Economic Research predicted a fall in national GDP in Q2 by 26.59% amid the coronavirus pandemic.

 

Australia

 

Today, the Australian currency is strengthening against the yen, weakening against the euro and the pound, and has an ambiguous dynamics against the US dollar.

 

Investors are focused on July data from the labor market, which turned out to be mixed. The employment in Australia increased by 114.7K instead of 40.0K expected. However, the unemployment rate also rose from 7.4% to 7.5%, the highest level in 22 years. In the future, it may increase even more due to the negative impact of the coronavirus outbreak in Victoria.

 

Oil

 

Oil prices are calm today and are moving in narrow lateral ranges.

 

Quotes are influenced by ambiguous factors. The EIA report published yesterday recorded a decrease in oil reserves in the United States by another 4.512 million barrels. At the same time, the volume of distillates fell by 2.322 million, and gasoline – by 0.722 million barrels. However, the International Energy Agency (IEA) lowered its forecasts for global oil demand for the first time in several months amid the intensification of the coronavirus pandemic. The agency said that this year the demand will be 91.1 million barrels per day, which is 8.1 million less than last year.

America’s Roundup: Dollar retreats on stimulus talks, Wall Street ends higher, Gold gains, Oil edges up to highest since March on hopes for U.S. stimulus-August 5th,2020

Market Roundup • US Redbook (YoY) -7.1%,-8.7% previous • US Redbook (MoM) 1.1%, 1.1% previous          •…

This summer’s massive gold price rally could be a sign that the market is losing confidence in the U.S. dollar as the world’s reserve currency, according to Horizons ETFs portfolio manager Nick Piquard.

“The rally is telling investors that the financial system with the U.S. dollar as the reserve currency, [might need] some changes,” Piquard told Kitco News last week.

Global debt and unlimited money printing are deteriorating the confidence in the U.S. dollar as the global reserve currency. 

“The U.S. dollar system has worked so far. But we’re getting to the point where there’s so much debt in the world and with this new crisis, there’s even more debt,” Piquard explained. “People are figuring out that maybe they will have to make some changes to how the U.S. dollar acts as a reserve system. The U.S. is probably going to have to print a lot of dollars to bail out all this debt. That’s really fuelling the gold rally.”

The market is also realizing that higher gold prices are inevitable due to the situation the Fed and the U.S. government have been forced into.

“Investors are seeing that this COVID crisis isn’t going to go away anytime soon. The cases keep going up globally. And the longer it takes, the more debt needs to be created,” Piquard said. “Congress is debating right now about how many trillions of dollars they’re going to have to spend for a new stimulus after having already spent trillions of dollars.”

And even once the COVID crisis is behind us, the economy is going to be weak for a while, Piquard pointed out. 

“After all that money has been spent, it’s not like you’re going to be able to raise taxes to get that money back, or it’s not going to be easy to raise rates,” he said. “The market is anticipating that the Fed is going to have to do more. And all those things are just beneficial for gold.”

The Federal Reserve cannot just go back to normal. “That will just be negative for everyone. Nobody really wins in that scenario,” Piquard noted.  

Inflation vs. deflation argument

There are currently two camps out there: inflationary and deflationary one. In the inflationary scenario, gold will do great, while in the deflationary one, the yellow metal will perform poorly, Piquard explained. 

“The deflationary guys think that gold is going to go a lot lower, stocks are going a lot lower and the U.S. dollar is going to go a lot higher,” he said. “Basically, what they’re saying is that there’s all this debt in the world and everyone has borrowed U.S. dollars and they’re going to have a hard time paying it back, especially with a weak economy … When they have to pay back that debt, everyone’s going to scramble for the U.S. dollars and that will drive down asset prices, which drives the U.S. dollar up.

The gold bulls believe in the inflationary argument that sees the Fed intervening and not letting deflation take over. 

“All the Fed needs to do is buy what is being sold. And that’s kind of what they’ve done,” Piquard said. “They’ve been buying bonds first. Now, they’re saying they’re going to buy corporates. Central banks around the world have already been doing this. The Japanese have been buying stocks for who knows how long, the Swiss central bank has been buying stocks.”

Based on the inflationary scenario, the Fed will continue to intervene, print more money and weaken the U.S. dollar. “That’s positive for gold, which is the only asset that you can’t print,” Piquard said. 

Inflation doesn’t even need to go much higher, the portfolio manager added. “All we need is for rates to be extremely low for extremely long and for inflation to be a little bit higher. As long as as the real yields are negative, that is good for gold.”

How to tell the gold price rally is over

The gold market has not seen its top yet with more upside potential still ahead of the precious metal, Piquard stated.

One major sign of a market top in gold is silver prices catching up and hitting their all-time highs of $50 an ounce.   

“Silver price generally makes new highs towards the end of a gold bull market,” Piquard said. “The reason for that is because silver is more of an industrial metal, which is used more in the economy. So when silver starts rallying, that implies that the economy might be picking up.”

So far, silver has risen but it is still significantly below its record highs. At the time of writing, September Comex silver prices were trading at $24.365, up 0.62% on the day. 

“Gold has made new all time highs and I think we need silver to reach its old highs as well. Then, there might be an indication that the economy’s doing better. Once we see silver catching up, then maybe it’s a sign that the bull rally has less room to go,” Piquard said.  

Another sign of a market top is the economy recovering and the Fed’s 2% inflation target being breached on a sustainable basis. “The Fed said they’re only going to raise rates once inflation recovers above their 2% benchmark. That that could take some time — a year or more,” Piquard noted.

Gold miners present a unique buying opportunity

In this very competitive market, gold miners present an interesting buying opportunity, according to the portfolio manager. 

“In terms of relative value, miners offer good [deal]. At over $1,900 an ounce, most miners are making money. Miners are significantly below the prices that they were at back in 2011,” he said. “Not all miners are equal but if you buy a portfolio of them, they offer more margin of safety because even if gold goes down a little bit, they’re still making some money.”By Anna Golubova

Source : Kitco News