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Gold Market Overview

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By leaving out weekly fuss, the Gold Market Overview reports enable you to see fundamental changes on the gold market in monthly format. The monthly report reveals what will drive the price of gold in the future and helps you to focus on the most important changes. Market Overview reports will make sure that you don't miss the forest for the trees.

  • Gold in Time of Plague

    March 29, 2020, 11:48 AM

    There has never been such a crisis. In matter of days, economies all over the world froze up. The stock markets plunged and the Wall Street experienced its largest single-day percentage drop since Black Monday in 1987. In response, the central banks shoots monetary bazookas while the governments are announcing mammoth stimulus packages.

    If you feel lost, if you do not know what to think about the epidemic and its impact on the global economy and the gold market, or if you feel that the world has gone mad, you should definitely read this edition of the Market Overview.

    We explain why this epidemic is a real threat and why it's pushing the world into recession. We also analyze the central banks' and governments' response to this unprecedented health and economic crisis. As always, we focus on the gold market, so we analyze thoroughly how the epidemic, global recession and the resulting monetary policy and fiscal policy response will affect the price of the yellow metal. So, given that you probably already sit at home under self-quarantine, keeping distance from the society, we invite you to read our Gold Market Overview and to find out what the current crisis implies for the gold market!

  • Will COVID-19 Cause a Global Recession and Make Gold Shine?

    March 27, 2020, 4:51 AM

    This text was written at the end of February, so it does not take into account many developments that occurred since then. More timely analyses you will find in the Fundamental Gold Report or in the April edition of the Gold Market Overview.

    We all know that viruses infect humans. But can they infect the economies? Can the SARS-CoV-2, responsible for coronavirus diseases outbreak, push the global economy into recession? We initially downplayed such as risk, as we thought that media as usual wind up public hysteria and that the whole epidemic would end faster than it began for good, just as it was in case of Ebola or Zika outbreaks. The slowing number of new infections in China with limited cases abroad only confirmed our belief that there was nothing to panic about.

    However, now we are more concerned about the potential social and economic implications of the COVID-19. The turning point was the emergence of hundreds of new cases outside China. At the end of February, the number of infections in the US, Singapore, Iran, Japan, Italy and South Korea have increased significantly. In particular, the confirmed cases in South Korea have shot up to more than 1140 (as of February 25), in Italy to 323 cases and in Japan to 862 cases, as the chart below shows.

    Chart 1: Total confirmed cases of COVID-19 in Italy (red line), Japan (green line) and South Korea (blue line) in February 2020.

      Total confirmed cases of COVID-19 in Italy (red line), Japan (green line) and South Korea (blue line) in February 2020 .

    The spread of the new coronavirus into Italy means that the COVID-19 is no longer an Asian problem. It makes it a European issue and possibly a global issue that could significantly disrupt global supply chains. The recent spread of the COVID-19 brings us also closer to the full pandemic stage.

    While economically speaking, it means that four of the world’s top 12 economies (by nominal GDP), which represents together almost 27 percent of global GDP, are now fighting to contain the virus.

    What’s more, these newly affected countries have been growing at a much slower pace than China. Actually, Italy and Japan are already on the brink of recession, as the chart below shows. The former country contracted 0.34 percent in Q4 2019, compared to the previous quarter, while the latter plunged 1.61 percent due to the hike in the sales tax and a powerful typhoon. So, another quarter of negative growth will put the eight and the third largest economies in the world into recession

    Chart 2: Italy’s (red line) and Japan’s (green line) quarterly real GDP growth from Q1 2015 to Q4 2019.

    Italy’s (red line) and Japan’s (green line) quarterly real GDP growth from Q1 2015 to Q4 2019.

    Moreover, Germany, which is the fourth biggest economy in the world, may follow suit, as it already stagnated in the final three months of 2019. Given the scale that German economy relies on trade with China, it is likely to contract in the first quarter of 2020 (and maybe in Q2 as well if the new coronavirus outbreak is not contained quickly).

    All it means, is that the world is just one step from recession. According to the IMF, global growth in 2019 was just 2.9 percent, the slowest pace since the Great Recession and just 0.4 percentage point above the 2.5 percent, which is considered to be the threshold of global recession (2.5 percent does not look recessionary for developed countries, but developing countries have higher average trend growth, which sets the trigger higher for the global recession). Actually, according to the World Bank, the global growth was 2.4 percent last year.

    Surely, the US looks like an oasis of growth among the slowing economies. However, the drop in Chinese demand and supply disruptions in China, the global industrial hub, may also hit America. Actually, private sector firms across the US signaled a slight decline in business activity in February. The IHS Markit Flash U.S. Composite PMI Output Index declined from 53.3 in January to 49.6 in February, driven by the first contraction in service sector output (the IHS Markit Flash U.S. Services PMI™ Business Activity Index decreased from 53.4 in January to 49.4 in February) in four years. Excluding the government shutdown of 2013, the American business activity declined for the first time since the global financial crisis. Of course, one negative reading is not conclusive enough, but it shows that even the US is not immune to global slowdown.

    What does it all mean for the gold market? Well, investors became more concerned about the prospects of global economic growth and scrambled for the US government bonds. As the chart below shows, the 10-year Treasury yields have declined below 1.40 percent, for the first time since July 2016. As a consequence, the yield curve has again inverted.

    Chart 3: 10-year Treasury yields (blue line, left axis) and the spread between 10-year Treasuries and 3-month Treasuries (red line, right axis) from January 2019 to February 2020.

    Treasury yields and the spread between 10-year Treasuries and 3-month Treasuries

    The inversion of the yield curve could force the Fed to cut the federal funds rate – after all, they slashed interest rates three time in 2019 just in response to the previous inversion of the yield curve. Indeed, this is what the traders expect right now. The market odds of an interest rate cut in April FOMC meeting have increased from to 24.6 percent on February 19 to 65.6 percent in February 26. The combination of slower economic growth, higher recessionary risk, lower bond yields and dovish expectations of the federal funds rate are fundamentally positive for the gold prices.

    Surely, this effect may turn out to be temporary if the new coronavirus is contained quickly, but the recent increase in cases outside China suggests that the epidemic may last longer with higher and more persistent economic impact than previously thought. Given that it is likely to spread also to the US, as the Centers for Disease Control and Prevention has warned recently, or even to transform into a real pandemic (which is defined as a truly global epidemic), there is further room for safe-haven inflows into gold. 

    If you enjoyed the above analysis and would you like to know more about the links between the coronavirus epidemic and the gold market, we invite you to read the March Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

    Thank you.
    Arkadiusz Sieron, PhD
    Sunshine Profits – Effective Investments Through Diligence and Care

  • Economics of Pandemics and Gold

    March 26, 2020, 2:12 AM

    This text was written at the end of February, so it does not take into account many developments that occurred since then. More timely analyses you will find in the Fundamental Gold Reports or in the April edition of the Gold Market Overview.

    The outbreak of the coronavirus disease (COVID-19), caused by SARS-CoV-2, in China has prompted considerable concern over its impact on the global economy. The scope of opinions is very large as usual. Some analysts claim that the coronavirus outbreak will trigger the recession, while the others tone emotions, arguing that the new virus will be quickly contained and the global economy will almost completely make up all the losses from the Q1. Let’s figure out where the truth lies!

    Generally speaking, the economic impact of epidemics comes from two sides. On the demand side of the economy, there is a decline in consumer expenditures. People are either ill or they try to avoid getting sick. So they put themselves in a “self-quarantine”, i.e., they stay at home instead of travelling, going to shopping malls, restaurants, cinemas, etc. Although a drop in the demand reduces the GDP growth in the short term, the compressed spending should reverse when the epidemic is contained (or translate into investments via savings). Moreover, the government can step in, increasing its health system expenditures.

    So, it seems that the effects on the supply side of the economy are more important. First of all, the epidemics reduce the supply of labor. In most cases temporarily, as some workers get ill but recover or they simply prefer to stay under quarantine rather than going to work. Investors should acknowledge that almost all Chinese regions have announced extended work stoppage for non-essential enterprises, and that quarantine was imposed on millions of people. The industrial production, thus, declined (in February, coal consumption decreased more than 30 percent annually). And, unfortunately, as some people die, there is also a permanent reduction in the supply of labor, which shrinks the economy.

    We can also split the economic costs of a pandemic into three main categories: according to the World Bank, about 12 percent of total costs comes from mortality, 28 percent from high worker absenteeism, and 60 percent of the impact is due to demand and supply shifts driven by people’s avoidance reactions. It means that the new coronavirus does not have to be very deadly to be economically costly.

    Moreover, during a severe pandemic, all sectors of the economy face disruption, potentially leading to shortages and higher inflationthe resulting stagflation should be supportive for the gold prices. It is important to remember that leading Japanese and European carmakers have factories in Hubei province, where the new coronavirus originated, which has already negatively affected the global production of vehicles.

    The reduced economic activity generates lower tax revenues. As it happens precisely when the government increases its spending, the effect is wider fiscal deficit, which may lead to fiscal stress and also support gold prices. As a reminder, the China’s general government debt has already increased from 27 percent in 2002, at the time of SARS, to 51 percent in 2018.

    In total, the estimates in the Bulletin of the World Health Organization place the cost of a severe pandemic (similar to the 1918 Spanish flu) at 0.6 percent of global income. The Congressional Budget Office estimates the costs of a potential influenza pandemic at 4.25 percent of GDP in the severe scenario (similar to the 1918 Spanish flu) and about 1 percent in the mild scenario. The World Bank argues that it could reduce world’s GDP even by 4.8 percent, or roughly $3 trillion, in the severe scenario, 2 percent in the moderate case, and 0.7 percent in the mild scenario. It seems a lot, but the aggregate cumulative GDP losses for Guinea, Sierra Leone and Liberia in 2014 and 2015 caused by the Western African Ebola are estimated to amount to more than 10 percent of GDP, although the death toll was “only” around 11,300 people. The influenza pandemics of 1958, although far less deadly than the Spanish flu of 1918, is estimated to cost 3.1 percent of the global GDP.

    Moreover, pandemics can have significant social and political consequences, such as heightening social tension, rising discrimination and protectionism. In particular, a Chinese regime hit by the COVID-19 could be tempted to find an external scapegoat and adopt a more aggressive stance toward Hong Kong, Taiwan or the US.  

    So, a severe pandemic on the scale of the 1918 Spanish flu could cause significant and lasting economic damage. But – and luckily! – the COVID-19 is not similar to the Spanish flu. It should rather be compared to the SARS outbreak, which was also caused by the coronavirus and originated in China. The SARS pandemic slowed China’s real GDP from 10.5 percent in the Q1 2003 to 8.9 percent in the Q2 2003, but the GDP growth has rebounded in the next quarter. Overall, the economic costs of SARS for China’s GDP are estimated to be somewhere between 0.5 to 1 percentage point (counterfactually, as one cannot practically see any damage in the annual GDP growth).

    However, the economic impact of the COVID-19 might be significantly higher than in case of SARS. This is because the role of China in the global economy has significantly increased. In 2003, China represented only about 8.3 percent of the world economy, while it now represents about 19.3 percent, as the chart below shows.

    Chart 1: China’s share of world’s GDP (based on the PPP) from 2002 to 2019.

    China’s share of world’s GDP Chart

    The country is also more linked with the rest of the globe. For example, China’s international air traffic rose from only 5 million in 2000 to almost 55 million currently. Importantly, China has also become a major part of global supply chains, which could have important repercussions for international companies, as the Apple’s announcement highlighted. Another difference is that China has much higher debt: the total private debt (loans and debt securities) ballooned from 102 percent of GDP at the end of 2002 to 208 percent of GDP at the end of 2018. Last but not least, the recent coronavirus outbreak occurred during the economic slowdown. At the time of SARS, China’s GDP was expanding by about 10 percent annually, while its growth has been reduced to just over 6 percent currently, as one can see in the chart below.

    Chart 2: China’s annual real GDP growth from 2001 to 2019.

    China’s annual real GDP growth from 2001 to 2019 Chart.

    For these reasons, the GDP growth in China could slow down by about 2 percentage points in the Q1 and by 0.5-1 percentage point in the full year. And what about the US? Given the links between Chinese and American economies, it suggests that the economic growth in the US could slow by about 0.4 percentage point in the first quarter, although some analysts expect even a reduction of a 0.8 percentage point. The growth in Europe in general and in Germany in particular may decelerate even more, as it is more dependent on trade with China.

    What does it all mean for the gold market? Well, the economic impact of COVID-19 will be larger than in case of SARS. It still may be temporary – after all, shocks are temporary by definition – but even temporary disruptions may be too much for the already fragile global economic growth. Although still a lot depends on how the COVID-19 will evolve, the spread of the new coronavirus outside China implies that its effect will not be a two-month issue that would be followed by strong growth, as the analysts predicted earlier. It means that the chances of global recession in 2020 have increased. Gold likes it!

    If you enjoyed the above analysis and would you like to know more about the links between the coronavirus epidemic and the gold market, we invite you to read the March Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

    Thank you.
    Arkadiusz Sieron, PhD
    Sunshine Profits – Effective Investments Throuh Diligence and Care

  • Pandemics and Gold: Part 2

    March 20, 2020, 3:21 AM

    In the first part, we analyzed the HIV/AIDS pandemic, as the most deadly pandemic since the 1971, and the SARS pandemic, as the most similar to the current COVID-19 pandemic. However, we have witnessed several other pandemics in the recent decades. Let's investigate them now and draw conclusions for the global economy and the gold market.

    Let's start with the epidemic of 2009 A/H1N1 flu, called also the swine flu. It originated in pigs from central Mexico and lasted from early 2009 to late 2010. It was highly contagious, as around 1.66 billion of people, or 24 percent of the then global population, contracted the illness. Luckily, the case-fatality rate was very small, around 0.001-0.0035 percent, which resulted in an estimated range of deaths from between 151,700 and 575,400 people, around 10 times higher than the first estimates based on the number of cases confirmed by lab tests. The peak of interest in the swine flu occurred in April 2009, while the number of cases peaked in June 2009. As one can see in the chart below, the price of gold did not rally to the hysteria about the swine flu. It is true that gold started in mid-2009 its great bull market, but the rally came after the peak in the swine flu outbreak, so it seems that it was rather a reaction to the Great Recession and the Fed's quantitative easing.

    Chart 1: Gold prices during swine flu pandemic (London P.M. Fix, in $).

    The next pandemic originated in 2012 in the Middle East, so it was named Middle East Respiratory Syndrome (MERS). Just like the COVID-19 and SARS, the MERS was caused by the virus from the coronavirus group. It was likely transmitted to humans through camels and was much more dangerous than the swine flu, as its fatality rate was 34 percent. However, only 2,506 cases and 862 deaths were reported from 2012 to January 15, 2020. The peak of infection and the peak of interest occurred in April - May 2014. As the chart below shows, gold prices actually declined during the peak of MERS pandemic, which was probably caused by the limited geographical scope - the majority of cases were reported from Saudi Arabia and other countries in the Eastern Mediterranean.

    Chart 2: Gold prices during MERS pandemic (London P.M. Fix, in $).

    Another recent pandemic was the West African Ebola virus. It originated in December 2013 in Guinea and lasted until 2016. According to the official data, there were a total of 28,646 suspected, probable and confirmed cases and 11,323 deaths (case-fatality rate of 39.5 percent), but the WHO suspects that the true number may be higher. The interest in Ebola virus started to rally in summer 2014 and remained elevated through the whole year, with the culmination in October. But as the chart below shows, gold prices decreased in that period. The probable reason of the gold's bearish reaction is the fact that the pandemic was contained to, as the name suggests, West Africa (mainly in Guinea, Liberia, and Sierra Leone), which is neither the major financial center nor the industrial center, like China is.

    Chart 3: Gold prices during Ebola pandemic (London P.M. Fix, in $).

    The next pandemic was the Zika fever caused by Zika virus in Brazil that started in March 2015. In November 2016, the WHO announced that Zika is no longer a public health emergency of international concern. It was estimated that 1.5 million people were infected by Zika in Brazil, with over 3,500 cases of microcephaly reported between October 2015 and January 2016. The interest in Zika virus started to rally in January 2016 and remained elevated through the whole year, with peaks in February and then again albeit lower in August.

    The price of gold also started to rally in January 2016, as the chart below shows. However, it's rather a coincidence as the more detailed analysis does not show the positive correlation between the gold prices and the interest in the Zika virus. For example, the latter plunged in March, but gold prices did not - there was a correction, but not a plunge. And despite the downward trend in the number of cases and the interest in the Zika virus, the price of gold generally was going upwards until September hawkish FOMC meeting. Gold's performance was driven more by the macroeconomic evens such as the introduction of the NIRP by the Bank of Japan in January 2016.

    Chart 4: Gold prices during Zika pandemic (London P.M. Fix, in $).

    Summing up, gold does not always react positively to pandemics. In some cases (MERS and Ebola), the price of the yellow metal even declined! It confirms our view that in the long-run, geopolitical drivers and all sorts of natural disasters are less important to the gold market than macroeconomic or fundamental factors. Gold is especially unmoved when the epidemic is geographically contained and it does not affect significantly the developed countries and the world's economy. As we often repeat, geopolitical events move the gold market the most significantly when they affect directly the US or the global economy.

    Thus, our historical analysis implies that the current outbreak of COVID-19 does not have to provide a sustained rally in the gold prices. Of course, this time may be different. This is because the new coronavirus originated in China, which is now an important part of the global economy and a major industrial center strongly linked through the supply chains with the US and European companies. But investors should not give in to fear - although in previous pandemics the stock market always plunged initially, it quickly gave way to a recovery and significant gains. It implies that the recent shift towards the safe-havens assets such as gold may reverse later in the future... unless the Fed chickens out and eases its monetary policy, which - given the recent spread of the coronavirus to the Europe and the US - has become more likely.

    If you enjoyed the above analysis and would you like to know more about the links between the coronavirus epidemic and the gold market, we invite you to read the March Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you're not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Thank you.

    Arkadiusz Sieron, PhD

    Sunshine Profits - Effective Investments Through Diligence and Care

  • Pandemics and Gold: Part 1

    March 13, 2020, 4:44 AM

    Although present in popular culture, the outbreak of COVID-19 has brutally reminded people of the risk of a pandemic. Some people panic unnecessarily, but their fear is understandable - after all, epidemics and pandemics (which are global epidemics) have accompanied humanity since the dawn of time, taking a serious toll. For example, the best known and the most devastating pandemic in human history, was the medieval Black Death that killed 75-200 million people, reducing the Europe's population by 30 to 60 percent.

    But are the fears about the new coronavirus justified? Must gold prices rally? Let's investigate the history of pandemics and draw conclusions for the current case, focusing - obviously - on the gold market. Investors should never panic but look to history as a guide. Although very interesting, we omit all the pandemics before the 1971, when the gold standard was abandoned and the yellow metal started to be traded freely. We also do not analyze numerous influenza epidemics, as they occur generally each year during the winter and impact primarily the elderly (majority of influenza-associated deaths are in persons over 64 years, whose immunity is weakened). We will analyze the pandemics visible in the table below, in this part focusing on the first two.

    Table 1: History of global pandemics (source: own elaboration based on data from the World Health Organization and https://www.ncbi.nlm.nih.gov/books/NBK525302/)

    So, we start our overview with the HIV/AIDS pandemic, which originated in Africa in the 1920s. However, AIDS was not recognized until 1981, while HIV was not discovered and related to AIDS until 1983. In the 1980s and early 1990s, the outbreak of HIV/AIDS swept across the United States and rest of the world. Although the number of new infections peaked in 1999-2000 at 3.16 million people infected that year, it has not still been eliminated. Actually, it is one of the world's most fatal infectious diseases, particularly across Sub-Saharan Africa. As of 2017, almost 36 million people are infected with HIV globally, and almost one million (954,000) people died from HIV/AIDS in that year.

    However, the gold prices did not rally in a response to the HIV/AIDS pandemic. The chart below displays the period of 1996-2001, when the number of new infections were above 3 million per year, with the peak of 3.16 million in 1999-2000. As one can see, gold remained in the bear market with only one significant rally, but related not to the HIV/AIDS pandemic, but to the Washington Agreement.

    Chart 1: Gold prices during HIV/AIDS pandemic (London P.M. Fix, in $).

    Why the financial markets do not panic because of HIV/AIDS? Well, the first reason is that HIV is spread not by droplet transmission, but primarily by unprotected sex and infected needles, so it does not spread as fast as the coronavirus and it is relatively easy to avoid the infection. Second, HIV does not kill right away, which makes it less frightening. Third, it is a well-known danger, while the new coronavirus is, well, new, which makes it look more dangerous. Fourth, the pandemic has been contained in the West, affecting mostly Sub-Saharan Africa right now. Whatever we think about it, global financial markets, including the precious metals market, react to geopolitical and health dangers only when they threaten economic centers of the world.

    The second pandemic was the severe acute respiratory syndrome (SARS) which was caused by the SARS coronavirus traced to the bats. The pandemic started in Guangdong Province, China, in November 2002 and ended only seven months later in June 2003, peaking epidemiologically in March 2003. According to the World Health Organization, the incidence was 8096 cases with 774 deaths, resulting in a case-fatality rate of 9.6 percent.

    As the chart below shows, the price of gold has increased during the SARS pandemic. However, the peak of the outbreak was between February and May 2003 - and in this period, the price of the yellow metal declined. In other words, gold peaked in February 2003, and then declined until April despite the pandemic being still in full force.

    Chart 2: Gold prices during SARS flu pandemic (London P.M. Fix, in $).

    Another issue is that gold was already in the bullish trend. So although the SARS pandemic certainly did not hit gold, it seems that the yellow metal was more driven by the fundamental factors, such as the loose monetary policy after the burst of the dot-com bubble and the 9/11 attacks rather than by the SARS-related fears. The pandemic also coincided with the US invasion of Iraq and a bear market in the greenback.

    Because COVID-19 is caused by the virus belonging to the same group of viruses as SARS coronavirus, and it also originated in China, it seems natural to compare the situation back then to now. Good news is that the COVID-19 is less deadly than SARS, as its case-fatality rate is 3.3 percent, compared to 9.6 percent of SARS. However, it is important to remember that the biggest economic costs of pandemics come not from mortality, but from people's efforts to avoid infection.

    Bad news is that the new coronavirus spreads faster than SARS, as the latter led to a total of almost 8,100 cases over the course of 8 months, while the number of COVID-19 cases surpassed 80,000 in just two months.

    Another key difference is that China's economy has become a more important component of the global economy and more intertwined with it. Given the trade wars and its much higher debt, it is also more vulnerable in certain dimensions than it was during the SARS outbreak (although it has more resources to contain the pandemic). Hence, the impact of COVID-19 pandemic on the global economy and, thus, the gold market might be higher than in case of HIV/AIDS or SARS outbreaks, especially that it broke out during the global slowdown and the beginning of the gold's bull market.

    If you enjoyed the above analysis and would you like to know more about the links between the coronavirus epidemic and the gold market, we invite you to read the March Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you're not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It's free and if you don't like it, you can easily unsubscribe. Sign up today!

    Thank you.

    Arkadiusz Sieron, PhD

    Sunshine Profits - Effective Investments Through Diligence and Care

  • Is Gold Antiviral Drug?

    March 11, 2020, 1:18 PM

    Pandemics are among the biggest potential black swans that could hit the globe, especially in the modern, highly globalized world of intensified travel and integration between countries. They can cause high morbidity and mortality as well as social, political and economic negative effects. The world has suffered from several notable pandemics, including the Black Death or Spanish flu. Now, the world is struggling with the outbreak of the new coronavirus that could turn out to be the new deadly pandemic.

  • Gold in the 2020s - Will the New Decade Turn Out Better than the 2010s?

    February 7, 2020, 7:06 AM

    Last month, we laid out our gold outlook for 2020. In the February edition of the Market Overview, we expand our analysis in two important ways. First, we update our fundamental analysis to incorporate the latest data, in particular those about the US fiscal policy. As the bipartisan consensus is that deficits don't matter, the perspective for gold this year could be better than we previously thought. Second, we look beyond 2020 and sketch the fundamental trends that will likely shape the global economy and the gold market through the whole 2020s.

    Moreover, we will analyze two important recent developments. The first one will be the 2019 repo crisis and the following Fed's intervention in this market. Second, the Riksbank has ended recently its experiment with negative interest rates. What does it all imply for the gold market? We invite you to read our Gold Market Overview and find out!

  • Will 2020 Be Better or Worse for Gold Than 2019?

    January 10, 2020, 4:14 AM

    The January edition of the Market Overview is always dedicated to the summary of last year's gold market fundamentals. It was indeed quite a fascinating time. The Fed cut the federal funds rate three times and ended the quantitative tightening, or even resumed the quantitative easing, just as the ECB did. Christine Lagarde became the new ECB President. The yield curve inverted and then reinverted. Trade wars eased somewhat in December with the phase one agreement. The bond yields bottomed out, while the U.S. dollar peaked. The price of gold jumped above $1,500 at one point, to stabilize around $1,460 at the end of the year.

    Our summary is not merely backward-looking. On the contrary, the analysis should help investors better understand the precious metals market, and draw appropriate investment conclusions for the New Year.

    We will also share our fundamental outlook for 2020, presenting our base scenario and its implications for the gold market. We will focus on the impact of the macroeconomic drivers, such as the interest rates, the Fed and the ECB monetary policies, the U.S. fiscal policy, etc. We argue that the fundamental outlook for gold has deteriorated since 2019.

    Last but not least, we will analyze the potential upside and downside risks for the gold market in 2020. In particular, we will examine whether investors should expect recession this year. We conclude that the although investors should not neglect the yield curve inversion, other recessionary indicators do not signal upcoming downturn, at least not yet.

  • Central Banks, Recession and the Changing Narrative for Gold

    November 1, 2019, 5:47 AM

    The crisis of central banking is deepening just as signs of recession are appearing. How would they affect the gold market? These are the key themes covered in this edition of the Market Overview. First, we deal with the U.S. repo crisis, as something clearly stinks there. Second, we analyze the ECB's introduction of tiering system and the implication for its monetary policy and the gold market. Third, we examine the manufacturing recession and its impact on the whole American economy and gold prices. Last but not least, we - inspired by the Mervyn King, the former Governor of the Bank of England - study the role of narratives in the gold market.

    One of the most important recent developments in the world of finance was the September liquidity crisis in the U.S. repo market. As a reminder, the repo market is where borrowers borrow cash from lenders against collateral in the form of safe securities such as government bonds. As we wrote in the Gold News Monitor, the U.S. overnight repo rate, which is the rate demanded to get cash in exchange for Treasuries for 24 hours, shot up from slightly above 2 percent to as high as 10 percent.

    Not so fast! On October 4, the New York Fed said that it would extend the overnight and term repurchase operations until November 4, 2019. And on October 11, the FOMC announced that the Fed will purchase Treasury bills at least into the second quarter of next year and will conduct term and overnight repurchase agreement operations at least through January of next year. So, everything is fine, but the repurchase operations will last longer. The GDP is growing at a decent pace, while the unemployment rate is at the lowest level in 50 years, but the Fed expands its balance sheet and cuts interest rates. Something stinks here, dear Watson!

  • Gold and the Next Round of Global Monetary Easing

    October 3, 2019, 11:17 PM

    Did you hope that central banks would normalize their monetary policy? Fat chance but we did. After all, they had ample time and really should, especially that ten years have passed since the end of the Great Recession. But central bankers rarely do what they should. So, instead of seeing the normalization of the monetary policy, we have recently witnessed another round of global monetary easing with the Fed and the ECB in avant-garde.

    This is why in this edition of the Market Overview, we examine the recent dovish U-turns among the central banks all around the world, analyzing how the monetary easing will affect the overall economy and the gold market.

    We also point out that the real interest rates have recently turned negative (briefly) in the U.S. We look at it more closely, investigating its potential effects on the gold market. Last but not least, we return to the inverted yield curve, presenting the true reasons behind it – and what do they imply for the gold market.

  • Gold in a World of Fed's Interest Rate Cut, Negative-Yielding Bonds, and Rising Debt

    September 6, 2019, 7:10 AM

    Do you like puzzles? We do. And this is why in this edition of the Market Overview, we take on four important puzzles. And solve them for you. The first mystery is why the Fed cut interest rates in July despite the seemingly solid state of the domestic economy. We carefully examine all possible explanations and their possible implications for the gold market.

    The second riddle revolves around a one-million dollar question whether 2019 is like 2007. The numbers are not the same, but the economic sequence – the inversion of the yield curve and the Fed’s interest rate cut – are quite similar, although not alike. We analyze these similarities and differences to draw investment conclusions for the gold investors.

    The third conundrum is why the heck investors accept negative bond yields? Global debt bearing negative yields has already soared to about $15 trillion – isn’t it a monetary madness? We investigate this issue for you, explaining how gold should behave in the world of negative-yielding bonds.

    Last but not least, we solve the enigma of low interest rates, slow economic growth and high debt. Why is the growth slower and slower, the debt higher and higher, and rates lower and lower? Forget about secular stagnation, the decline in the neutral (natural) interest rates, or other lame explanations. The true answer is that the low rate environment established by the key central banks perpetuates low rates, high debt and low growth coupled with capital misallocation. In other words, the advanced countries fell into the debt trap. We study the concept and present its implications for the precious metals investors.

  • The Message of Yield Curve Inversion for the Economy and Gold

    August 2, 2019, 2:54 AM

    The pundits have been predicting recession for years. Just like a shepherd boy, they have continuously cried the wolf. Many investors were convinced that there was a recession just around the corner, but there wasn't. The boy's pranks (the gloomy forecasts of economists) were a false alarm and those who believed them, made the type I error, i.e., they incorrectly rejected the null hypothesis that there is no wolf (recession).

    But what is now crucial is to not commit the type II error. In the fable, when a wolf actually appears and the boy again calls for help, the villagers believe that it is another false alarm, so they do not come to the boy's aid and the wolf eats the sheep. The villagers incorrectly accepted the null hypothesis that there is no wolf. Similarly, although the pundits were constantly wrong crying the recession for years, investors should not shrug it off when it actually arrives. While a recession does not eat sheep (as far as we know), it can consume your capital and deplete your wealth.

    This is why in this edition of the Gold Market Overview, we take the possibility of the U.S. recession in 2020 seriously. After summarizing and drawing conclusions from the gold market in the first half of 2019, we examine thoroughly the inversion of the yield curve. In particular, we analyze in detail its history and whether its predictive power has diminished or not. The yield curve has inverted not only on a daily basis, but also on a monthly basis which smooths out the daily volatility. Therefore, we acknowledge that the recessionary risk has increased further. We'll then explore together what it means for the gold prices, investigating also how well did the yellow metal perform in pre-recessionary periods.

  • Economists Predict a Recession in 2020. Should Gold Investors Take It Seriously?

    July 5, 2019, 5:09 AM

    Do you think that recessions are rare? Not at all! Actually, economies find themselves in a state of recession for 10-12 percent of the total time. What is rare, is a recession that is correctly predicted. Paul Samuelson, a Nobel Prize winner in economics, joked once that the stock market has predicted nine of the last five recessions. However, the economists are not much better. Unlike the stock market, they are more likely to miss recessions than to predict ones that never occur - the inability to see the arrival of the Great Recession is the best example of poor forecasting ability among the pundits. Indeed, as Zidong An, Joao Tovar Jalles, and Prakash Loungani found in a recent working paper How Well Do Economists Forecast Recessions?, in April of the year before recession, forecasters predicted only five of 153 recessions in 63 countries from 1992 to 2014.

    The current consensus is that there will be a recession by the end of 2020. According to the National Association of Business Economics's latest survey of 53 professional economic forecasters, 60 percent of participants expect a recession by the end the next year. Similarly, 48.8 percent of economists in the June 2019 Wall Street Journal Economic Forecast Survey expect the next recession in 2020. That's up from just over a third in the May survey.

    The financial officers think alike. In the latest Duke CFO Global Business Outlook Survey, 69 percent of American CFOs predicts the U.S. economy would be in a recession by the end of 2020 (the crowds are less pessimistic, but they assign a 37 percent probability of the recession by the end of Trump's presidency, according to the PredictIt).

    But can we trust these forecasts, given the analysts' poor track record? This is what we investigate in the current edition of the Gold Market Overview. We analyze the strength of the present expansion, which has already become the longest economic boom in the US post-WWII history, wondering whether the recession is coming. However, we do not take the pundits' gibberish at face value, but focus on the reliable, research-based recessionary indicators. Some of them are relatively new and not widely known, but they are certainly (or even all the more thanks to the lack of media' attention) valuable for the precious metals investors. A successful forecast of recession could easily boost the gains from the gold's portfolio.

  • Somebody Has Been Lying in My Bed. Has It Been Gold or Goldilocks?

    June 7, 2019, 5:57 AM

    Admit it, you thought that Goldilocks is innocuous. After all, she is just a little girl who ate some porridge and laid on the bed. But she was actually an impudent burglar. Similarly, almost all people, in particular on Wall Street, like the Goldilocks economy. After all, steady GDP growth and low inflation are good, right? But not for gold!

    Hence, in this edition of the Market Overview, we will analyze the link between the Goldilocks economy and the precious metals market. Although the former includes "gold" in its name, it is not supportive to the yellow metal.

    We will also examine whether the US economy will remain neither too hot, nor too cold. This month is perfect for such a study, as the current expansion has just matched the 1990s boom - so far, the longest economic expansion on record in the US history. So, we will compare both periods of prosperity, to draw valuable conclusions for the gold market.

    Last but not least, we will look closer at monetary statistics. The growth of US money supply is slowing down, and some analysts worry that this is a canary in a coal mine. We will, thus, examine the potential consequences of sluggish monetary growth on the economy and the gold market.

  • MMT, Fed and Zombie Walks Into a Bar. What Does Gold Say?

    May 10, 2019, 7:34 AM

    You may think you've heard every bar joke, but we are pretty confident that you have missed the one in which the MMT, the Fed and the Zombie walk into a bar. In this edition of the Market Overview, we will not tell you the punch line, but we will do something better. First, we will analyze the potential consequences of the Modern Monetary Theory, which has recently gained considerable popularity. Although it sounds like a joke, some politicians and economists really believe that the governments can spend as much as they want, simply because they can print money. We will examine this claim and figure out what would the implementation of the MMT mean for the gold market.

    Second, we will explain how the new Fed's framework works. As you have probably heard, the US central bank operates under the regime of ample reserves. We will take a closer look and see what it implies for the monetary policy and the precious metals market.

    Third, as the current expansion is just a few months away of becoming the longest recorded period of economic boom, we compare it with the previous expansions. The analysis will enable us to assess whether the next recession is just around the corner or we could still enjoy the boom for some time. We also draw conclusions for the gold prices.

    Last but not least, we consider the idea that we will not experience the full-blown financial crisis again. Instead of deep recession, the European and American economies will gradually follow Japan and sink into stagnation full of zombie banks and zombie companies. We assess whether the scenario of zombification is realistic and what it would mean for the gold market.

  • Will Global Slowdown and Dovish Fed Make Gold Rally?

    April 5, 2019, 6:28 AM

    Run away, global slowdown has come! Only several months after the synchronized global growth dominated the media, the pundits are now not talking about anything else than economic slump. So we decided to enter the game and to check these claims. For us, the current slowdown results partially from previous China’s struggle to deleverage its economy. Now, with fresh stimulus, we expect that the growth’s deceleration will be temporary, which may upset the gold bulls in 2020. We elaborate on this in this month’s report.

  • Gold Bulls Ask: Will Recession Arrive in US This Year?

    March 8, 2019, 4:58 AM

    Recession is coming to town! This is at least what everyone seems to believe right now. But are they right? The aim of this edition of the Market Overview is to answer this million-dollar question. We start from the official indicators used by the NBER (such as real income or industrial production) to authoritatively determine the beginnings and endings of the US recession. Then, we examine historically the two most reliable indicators of the American slumps: the unemployment rate and the yield curve. Last but not least, we analyze other important indicators, such as jobless claims, auto sales or consumer sentiment, to assess the state of the US economy and to draw important conclusions for the precious metals investors.

    However, it’s not that the whole report is devoted to the recession and ways to predict it. We could not ignore the spike in the price of palladium – hence, the first part of our report is about the recent developments in the palladium (and platinum) markets, in particular in the context of the dynamic changes in the automotive industry and tense political situation in South Africa.

  • Europe, United States, and China – Past, Present, and Future (of the Gold Market)

    February 1, 2019, 6:21 AM

    Old continent, the global hegemon, and the rising power. Europe, the United States, and China – where will the black swan land?

    On the surface, the world is in an excellent shape. There is a slowdown in GDP growth, but the global economy is still expanding well.  In most developed countries, inflation is stable, while unemployment rate is very low. However, investors feel that something is in the air. What will, and where, surprise the world tomorrow? Will it be  Donald Trump’s tweet? Will Brexit finally happen? Will Eurozone go bankrupt? Will China fall into recession? Will there be a war over the South China Sea? 

    In this edition of the Market Overview, we answer some of these questions. The starting points of our analysis are two important anniversaries. We celebrate 20 years of the euro and 40 years of a market reform in China. We show that although the construction of the Eurozone is flawed, the rumors about the death of euro are exaggerated.

    It’s unimaginable what great progress China made in the last forty years. The rise of such economic power triggered many fears (or hopes) about the future international order – but, as we present, the China’s threat is overblown. The slowdown in China’s economic growth is more probable however, which will not be meaningless for the gold market. Last but not least, we examine whether, as some analysts claim, 2019 will be similar to 2016, drawing important conclusions for the gold outlook for the upcoming months.

  • Will 2019 Be Better for Gold Than 2018?

    January 11, 2019, 6:19 AM

    We always have mixed feelings when we write January editions of the Market Overview. On the one hand, we are always surprised how quickly a year has passed. Time runs so fast – only gold stays unmoved, shining for the eternity.

    On the other hand, we like summaries as we always learn something new about the gold market – something we can share with our clients. And we also like writing fundamentals forecasts, as it forces us to reject accidental movements and all that informational noise. It pushes us to focus on what is really the most important for the gold market, and thus, our client’s profits. 

    In this edition of the Market Overview, we will summarize last year in the gold market from the perspective of its fundamentals. It was quite a fascinating period. The Fed hiked the federal funds rate four times. The ECB ended its quantitative easing. Populists won elections in Italy and clashed with the EU Commission over the fiscal policy. Democrats took over the control of the House. Angela Merkel announced her resignation from the leader of the CDU.  Trump’s tax cuts became effective, widening the US fiscal deficit. Trade wars intensified. The stock market corrected. Inflation has peaked. The cryptocurrencies plunged. The bond yields surged.

    What is important is that our summary is not merely backward-looking. On the contrary, the analysis should help investors better understand the gold market, and draw investment conclusions for the New Year.

    We will also present our fundamental outlook for 2019, presenting our base scenario and its implications for the gold market. We will focus on the impact of the macroeconomic drivers, such as the interest rates, the Fed’s and the ECB’s monetary policies, the US fiscal policy, etc. 

    Last but not least, we will analyze whether investors should expect recession in 2019 or 2020. We conclude that the warnings against the next crisis may be premature, drawing significant implications for the adequate position in the precious metals market.

  • These Factors Won’t Prevent Gold's Decline

    December 7, 2018, 6:18 AM

    There are plenty of myths about the gold market, in particular about the alleged factors which are supposed to prevent gold prices from declining. In this edition of the Market Overview, we refute five of them:

    1. Trade wars and lax fiscal policy are negative for the US dollar and positive for gold.
    2. Central banks’ purchases create a floor for gold prices.
    3. The price of gold cannot decline and stay below the gold production costs.
    4. There is a disconnection between paper and physical gold prices and the former has to catch up with the latter eventually.
    5. The extreme bearish CoT positioning necessarily implies the turning point in the gold market.

    These statements are all false. Let’s read our monthly report and find out why they are wrong. When you understand it, you will be smarter than 90 percent of gold investors. And you will significantly boost your potential to gain. We do not offer a magic trick to take risk-free and enormous profits. But we provide you with knowledge and tools empowering you and enabling you to take advantage of each market situation and invest accordingly.

  • Gold In A Post-Midterm Elections Era

    November 2, 2018, 9:18 AM

    The mid-term elections are coming! Will they revolutionize American policy and affect the gold prices? Will Democrats take control of Congress and impeach Trump? Let’s read our monthly report and find out, as we devote one part of it to the analysis of possible links between the likely results of the elections and the gold market.

  • Gold One Year after QT and Ten Years after Lehman

    October 5, 2018, 9:50 AM

    Quarter, year, and ten years. That’s what we are writing about in this edition of the Market Overview. We start with the summary of the third quarter of 2018 and our outlook for the end of the year. Next, due to the 10th anniversary of the Lehman Brothers’ bankruptcy, we present lessons from that event for the gold investors. We also offer an update on the quantitative tightening. The program started one year ago, in October 2017, so it is an excellent opportunity to come back to the issue. Last but not least, we analyze whether POTUS can reduce the Fed’s independence. The recent Trump’s remarks worried investors, so they require a comment. The weakening of the US central bank could alter its monetary policy and the gold market – but is it possible? Let’s read our monthly report and find out!

  • Will the Fed’s Tightening Trigger another Recession?

    September 6, 2018, 12:21 PM

    The end is near! The Fed hikes interest rates and it never ends well! The yield curve is almost flat. Recession is just around the corner! This is what one can hear every day. But are these gloomy predictions justified?

    In this edition of the Market Overview, we will examine this million-dollar question. We let our imagination run wild and sketch the rosy picture. Then, comparing optimistic and pessimistic scenarios, we will be able to provide our Readers with a data-based and realistic gold market overview.

    In particular, we will thoroughly examine the previous tightening cycle to answer the question whether the next recession is likely to occur in the near future. Based on our historical analysis, we will draw some important investment conclusions for the gold investors. Last but not least, we will discuss the yield curve again. We have written about it in the last edition of the Market Overview, but the issue is so hot that it definitely needs more attention. We closely observe it for our Readers – and we will share our thoughts with them.

  • Gold Market after Nine Years since the End of Great Recession

    August 3, 2018, 9:41 AM

    How quickly time passes! It has been nine years since the Great Recession ended. What does it imply for the economy and the gold market? Are we on the verge of another crisis?

    In this edition of the Market Overview, we will answer these questions. We will summarize the gold market in H1 2018 and provide tips on what to expect next. In particular, we will analyze the state of the current economic expansion, and whether or not it will end soon as many analysts believe.

    Also, we will examine the two hottest issues in the past six months, or even the whole recovery. First of all, inflation has come back. After years of being subdued and resulting in fears of deflation, it has reached the Fed’s 2-percent target. Will that make gold shine – or not necessarily?

    The second important theme we will discuss is the yield curve. It has become very flat – actually, we are only about 25-30 basis points from the inversion. As the inverted yield curve is believed to be a good predictor of the recession, we will dig into the topic and draw conclusions for the gold market.

  • Will Fed’s Tightening Set the World on Fire?

    July 3, 2018, 11:58 AM

    In June, the Fed hiked the federal funds rate for the seventh time in this tightening cycle. A lot of people worry that the Fed’s unwind of its balance sheet combined with the higher interest rates and the stronger dollar will bring the next catastrophe to the world. Italian yields have already spiked, while Argentina and Turkey face economic crises.

    In this edition of the Market Overview, we will dig into this topic. We will examine in detail the recent monetary policy decisions undertaken by the Fed and the ECB, the two systematically important central banks. After the ECB decision to stop its bond-purchase program in December 2018, there will be no quantitative easing on both sides of the pond. We will analyze what it means for the gold market. Given the fears that the Fed’s tightening will cause the next crisis, we will examine this hypothesis in the context of the gold market, focusing on the emerging countries, which are especially sensitive to changes in the Fed’s stance.

    Last but not least, we will go for another trip to Italy, to reflect on the possible implications of the Italian turmoil on the euro and the gold market. And we will try to establish whether the next crisis in the Eurozone is coming.

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