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.
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 , 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 that it would extend the overnight and term repurchase operations until November 4, 2019. And on October 11, the FOMC 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 is growing at a decent pace, while the is at the lowest level in 50 years, but the Fed expands its and cuts . Something stinks here, dear Watson!
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
- Trade wars and lax fiscal policy are negative for the US dollar and positive for gold.
- Central banks’ purchases create a floor for gold prices.
- The price of gold cannot decline and stay below the gold production costs.
- There is a disconnection between paper and physical gold prices and the former has to catch up with the latter eventually.
- 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.
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.
October 5, 2018, 9:50 AM
Quarter, year, and ten years. That’s what we are writing about in this edition of the. 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 . 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 could alter its and the gold market – but is it possible? Let’s read our monthly report and find out!
September 6, 2018, 12:21 PM
The end is near! Thehikes 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, 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 previousto 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 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.
August 3, 2018, 9:41 AM
How quickly time passes! It has been nine years since theended. What does it imply for the economy and the gold market? Are we on the verge of another crisis?
In this edition of the, 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,has come back. After years of being subdued and resulting in fears of , 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. 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.
July 3, 2018, 11:58 AM
In June, the Fed hiked thefor the seventh time in this tightening cycle. A lot of people worry that the Fed’s unwind of its combined with the higher and the stronger 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, we will dig into this topic. We will examine in detail the recent decisions undertaken by the and the , the two systematically important central banks. After the ECB decision to stop its bond-purchase program in December 2018, there will be no on both sides of the pond. We will analyze what it means for the gold market. Given the fears that the 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 theand the gold market. And we will try to establish whether the next crisis in the Eurozone is coming.
June 5, 2018, 8:25 AM
We live in turbulent times. Truism? Obviously. But see for yourself how much has changed since the last edition of the. The 2-year Treasury jumped above 2.5 percent. The broad index surged above 120, while the index against major currencies above 89. The declined below 1.175 against the . The price of gold dived under $1,300. Are there more declines in gold prices ahead of us?
In this edition of the, we will answer this key question. To achieve this ambitious goal, we will carefully examine the recent macroeconomic developments, such as the rising and rapidly appreciating U.S. dollar – and their likely effects on the gold market. Given the enormous global pile of debt, which is sensitive to changes in rates and greenback’s strength, we will analyze whether, or how strongly, the debt crisis threatens us.
Last but not least, we will go on a journey to sunny Italy to inspect the country’s not-so-sunny political and economic outlook. As it is one of the biggest economies in the world, we will investigate what could be the possible consequences of recent populist breakthrough in Italy for gold.
May 4, 2018, 10:07 AM
Earth is not round. Neither flat. It is an oblate spheroid, but we model it as if it was round. In economics and finance, we also use a lot of models. We need to simplify reality – abstracting from some accidental features enables us to focus on the essence of things. When we analyze the concept of a horse, we can ignore its particular color.
When we model gold prices, we also abstract from some factors. In modern complex economies, everything is interdependent. But we cannot fall into nihilism and say that everything affects everything, including the price of gold. There are some casual relationships – and some drivers are more important than others.
In this edition of the, we focus on the most significant drivers of gold prices. We distinguish three such factors – and we examine how they affect the price of gold. In general – and in the first four months of 2018 in particular. Knowing what really impacts the gold prices enables investors to make better decisions. They can skip the analyses which concentrate on the or the average production costs – and focus on the true factors.
Although we argue that there are only few key drivers of the gold prices, we show that it is extremely difficult to model the price of gold. We do not offer oversimplified solutions, as many analysts do. Instead, we take our time to explain how the gold drivers are really interconnected – and how to use this knowledge in the.
April 6, 2018, 4:57 AM
Roger Waters, once the leader of the legendary Pink Floyd, released a solo album entitled “” in the 1990s. Looking at some data, we would describe the 2010s rather as “Indebted to Death”. What does it mean for the gold market?
In the last edition of the Market Overview, we wrote about the debt cycles. In this edition of, we will continue this topic, analyzing the current dynamics in the U.S. debt. In particular, we will focus on the , which has just surpassed $21 trillion, and the margin debt, which has been recently rising as well.
Based on Damodaran’s classification of investments and his distinction between pricing game and value game, we will determine whether gold is an asset, a commodity, a currency or a collectible. When we establish once and for all the nature of gold, we will be able to formulate a proper philosophy for investing in gold. Adopting an appropriate stance will enable investors not to commit simple mistakes and to boost their gains.
March 2, 2018, 7:00 AM
February was hot. The stock market crashed. It partially rebounded, but where are we now – and where are we going? In this edition of, we will analyze what does the recent correction in the S&P 500 Index imply for the gold prices.
February 1, 2018, 12:40 PM
The first month of 2018 is behind us. It was exciting period for the gold market, as the shiny metal jumped again above $1,300. The two most important macroeconomic themes in January were the so-called Great Unwind of theand the weakening U.S. dollar.
In this edition of, we will focus on these key issues. First, we will examine what the Great Unwind implies for the and gold. In a response to the , the major central banks boosted their balance sheets. A decade later, there is a strong economic growth momentum, so we head into the Great Unwind. The tightening of monetary policy and higher could be negative for gold, but more hawkish and would mean narrower between the and other major central banks.
Second, we will expand our analysis on the future of the greenback. In particular, we will answer the question of why the American currency has been falling like a stone recently, despite the. We will also explore the historical and cycles in both the U.S. dollar and gold. As the yellow metal has a strong negative with the (and the usual relationship between the gold prices and broke down temporarily), the trend in this currency is likely to be the vital driver in the gold market in 2018.
January 3, 2018, 3:24 PM
This was another fascinating year. Perhaps it was not as eventful as 2016 (when the Brexit referendum and Trump’s triumph in the presidential election happened), but it was still very interesting. Trump officially became the President of the United States, while Emmanuel Macron won the French elections. Later this year, Trump almost unleashed nuclear war on the North Korea. And therallied at the end of 2017, drawing the attention of the world. The last year was also a time of changes within the – Powell was nominated as Yellen’s successor. But generally it was a rather politically calm and economically positive year, despite the natural disasters, which may explain the modest gains in the gold market. The conflict over North Korea did not explode, the U.S. stock market continued its upward move, and the Fed gradually tightened its . The global economic growth accelerated and became more synchronized.
In this edition of, we will summarize the last year in the gold market from the perspective of its fundamentals. This analysis should help investors better understand the gold market, and draw for the New Year. We will also present our gold outlook for 2018, presenting the base scenario and examining some or potential triggers for the . We will focus on the impact of the macroeconomic trends, the Fed’s monetary policy and the on the price of gold. Given that in the long run the gold trade is generally about the confidence in the greenback, the fate of this currency may be the biggest driver in the gold market next year.
December 1, 2017, 8:14 AM
In the last edition of the, we analyzed the candidates for the next Fed’s Chair. In line with our prediction, Trump nominated Jerome Powell for this position. Hence, in this issue next, we examine in detail what the Yellen’s replacement by Powell implies for the gold market. We will also discuss the Taylor Rule and its impact on the yellow metal in a more detailed way. There is still a long way to implement a more rule-based policy by the , but investors should be prepared, especially if John Taylor joins the . And as the U.S. central bank started unwinding its in October, we will analyze its hitherto and potential impact on the financial markets and the price of gold. Last but not least, we will, as usual, provide investors with an update on recent fundamental drivers of the gold market, answering the question of how the medium-term outlook for the gold market has changed over the last quarter and what investors should expect in the last month of the year. In particular, we will address the recent flattening of the yield curve and whether it will support bullion prices.
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