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Fundamental Gold Report

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Gold report that enables you to quickly respond to the latest fundamental changes on the gold market. Posted bi-weekly, the Fundamental Gold Reports by Arkadiusz Sieroń, PhD will make sure that you stay up-to-date with the latest fundamental buzz. For all gold investors, who want to know the “why” behind gold’s price swings, our gold reports are a must-have.

  • Gold Investors Should Look at Past Elections

    November 2, 2020, 11:47 AM

    Election Day has finally arrived. Who will win, and why gold will remain the biggest winner of them all?

    So, today is the day! It's Election Day. For quite some time, national polls indicate that Biden has a significant advantage. He is also polling scarcely close ahead of Donald Trump in key battleground states, but, in some states, the lead has recently narrowed. So, in many places, the race is still too close to call, making them toss-up states. Hence, although according to political pundits, polls, and bets Biden will become the next POTUS, anything could happen.

    And we mean - anything. Everyone knows that back in 2016, Hillary Clinton also led in the polls. However, Trump won the election, to everyone’s surprise. Of course, the polling methodology has been improved since. But now, Biden has a much wider advantage than Hillary did in 2016, and he is much more conservative and more moderate in his approach than Clinton (historically, more moderate presidential candidates generally do better in presidential elections).

    Additionally, the election results might not be known right away, and there are indications that they might be contested. Who knows what could happen if that’s the case? According to some analysts, contested elections should increase the geopolitical uncertainty and boost the safe-haven demand for gold. On the other hand, some analysts also believe that the contested elections would put downward pressure on the stock market, dragging gold down in the process. The fact of the matter is that contested elections would undoubtedly delay the fiscal stimulus package, which should be negative for gold prices.

    So, who is right? It is true that recently, gold has been moving in tandem with the stock prices, responding to the stimulus expectations. But, in times of stress and reduced faith in the American institutional system, gold could decouple from equities and behave more like a safe haven asset.

    In any case, tomorrow, the elections will already be behind us. Hopefully, we will get the results quickly. No matter who wins, the new administration and the new Congress will have to deal with the second wave of the coronavirus and fragile economic recovery.

    Oh, by the way, as the chart below shows, the US reported 101,273 new Covid-19 cases on Saturday, the daily record not only for America, but for any country! And according to some epidemiologists, the worst is yet to come –that is, if the upward trend in cases continues, which could overwhelm the health system.

    No matter whether red or blue, the new government is likely to pump more liquidity into the economy. So, gold could thrive under either Trump or Biden, although we could see increased volatility in the short-term precious metals market.

    Implications for Gold

    What does all the above mean for the gold market? Well, investors should look past the elections already. They matter less than many people believe. The 2016 presidential election is the best example of that. The price of gold indeed declined in the aftermath of Trump’s victory, but the downward trend was eventually reversed.

    So, yes, you should be prepared for elevated volatility this week. After all, we are about to witness not only the elections, but also the FOMC meeting and equally important economic reports, including the nonfarm payrolls.

    However, as I have repeated many times before, gold’s responses to geopolitical events are relatively short-lived. In the long run, what drives gold prices are the fundamental factors. And the fundamental outlook remains positive for the yellow metal. Both the monetary policy and the fiscal policy are extremely dovish. The public debt is ballooning, while the US dollar is weakening. The real yields remain negative.

    Yes, as the chart below shows, the real interest rates have stabilized or even increased slightly since August, which explains gold’s struggle in recent months.

    Nevertheless, the Fed will maintain its policy of ultra-low nominal interest rates for years, while inflation will accelerate at some point, possibly when the economic recovery sets in for sure. This means that the real interest rates should remain very low or even decrease further, supporting the gold prices in the process.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Corona Strikes Back in the US. Will It Infect Gold?

    October 29, 2020, 6:12 AM

    Covid-19 infections are surging. Will the price of gold surge too?

    Things are not looking good folks. The epidemiological situation is worsening. As the chart below shows, the number of new daily cases (the rolling 7-day average) has recently reached a new record.

    The record spread has brought the national total to about 8.78 million infections and nearly 227,000 deaths. What’s more frightening, with the recent spike, these numbers are only going to rise higher. Some epidemiologists even claim that the next several weeks will be the darkest period of this pandemic. As a reminder, the second wave of the Spanish Flu was the worst and most lethal – let’s hope that history will not repeat itself when it comes to the coronavirus infections.

    However, what is really disturbing is that in certain states, the rising cases of Covid-19 are threatening the healthcare’s capacity that needs to deal with the pandemic. Therefore, we ask you to please stay careful and take care of yourself as your number one priority!

    Moreover, the latest news about the delays in the vaccine tests suggest that a viable vaccine that has proved efficient and safe to a reasonable extent will not be produced on a full scale by spring 2021 at the earliest. Like the many times that I’ve warned you before - waiting for the vaccine is like waiting for Godot, who never arrives.

    Unfortunately, counting on the vaccine has become the primary national strategy for dealing with the coronavirus. Thus, the risk remains that without a quick vaccine distribution, the epidemic will spiral out of control.

    Implications for Gold

    So, how will the Covid-19 cases surge affect the gold market? It seems that this time, people were expecting the second wave of the pandemic and are slightly less frightened. But, if the hospitalization rate increases further, the panic may set in again. The second wave implies more social distancing and a slower recovery. It is also an argument for somewhat larger than smaller financial stimulus.

    All these reasons are fundamentally positive for the yellow metal, although the gold price has been trading around $1,900 so far, as one can see in the chart below.

    The US presidential election is another issue by itself. Rightly or not, some voters can blame the President for the rising number of infections. Thus, the pandemic increases Biden’s changes, whose potential victory is perceived as a more bullish scenario for gold (especially if Democrats also take full control of the Congress). As the chart below shows, he has an average polling lead of 8.0 percentage points over Trump. I would not bet my money on these polls (simply because they are inaccurate and respondents don’t want to give their genuine opinion about politics when polled), but nevertheless, the lead is pretty impressive.

    Still, expect the unexpected. Although Biden is believed to be more inflationary and positive for the gold prices, as a response to the election results, the markets can behave unexpectedly, especially in the short-term. As a reminder, many analysts believed that Trump would be very bullish for the gold prices. Of course, gold gained significantly during his presidency, and, yes, it soared during election night, but it quickly reversed and went into a downward trend for months.

    In any case, the elections may be of less importance than many people believe. After all, no matter who is elected, the next president will deliver a large financial stimulus, because the pressure from businesses, Wall Street, states, and people is simply too big. The increases in fiscal deficits, public debt, and the Fed’s balance sheet should support the gold prices.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Gold Is Likely to Win This Election

    October 27, 2020, 1:47 PM

    Trump and Biden debated for the second and last time in this campaign. So, who will win, and why gold is likely to be the biggest winner of them all?

    President Donald Trump and Democratic challenger Joe Biden met for the second and the last debate before the elections. Thankfully, this time things were less chaotic and with far fewer interruptions and insults. Perhaps Trump has acknowledged that his aggressive behavior was a liability and decided to change his approach – especially since this was his final opportunity to alter the presidential campaign dynamics.

    However, it might be too late now. According to both nation-wide and state-by-state polls, and market bets, Biden is still in a significant lead (as the chart below shows). Moreover, because of the postal voting, many votes are already locked in, as a record 47 million Americans have already cast their ballots.

    In addition to the above, the epidemiological situation does not help Trump at all. People believe that he dealt poorly with the epidemic, and now we even have the resurgence in the number of Covid-19 cases in the United States (and other countries as well), presented in the chart below. It is not only a resurgence, it is a new black record of the number of cases!

    The pandemic is hitting even harder now than in the spring. This means that the economic recovery will remain fragile, which is bad news for Trump, but excellent for gold prices. Indeed, the latest Beige Book showed that most parts of the country's economic activity were "slight to modest". And the leading economic index rose just 0.7 percent in September, following the increases of 1.4 percent in August and 2 percent in July.

    However, even though mainstream pollsters have corrected some of the mistakes they made in 2016, it’s safe to assume that Trump has better reelection chances than it is widely believed and reflected in the mainstream polls. As you might’ve noticed by now, Biden spurs less enthusiasm than Trump and even less enthusiasm than Clinton, for that matter. He is mainly an anti-Trump choice, so some of his voters may not show up on a ballot day.

    Implications for Gold

    So, what does all the above mean for the gold market? Well, it depends on the election results. The best scenario for gold will be a Democratic sweep, as it would imply more chances of higher taxes, increased regulation, and big fiscal stimulus. Trump’s victory should be good for gold, as it would be a continuation of the trade wars, budget deficits and geopolitical uncertainty. After all, as the chart below indicates, gold saw about 50-percent gain during Trump’s presidency.

    The worst scenario (but not necessarily significantly bad in absolute terms) could be Biden’s victory but with Republicans retaining Senate. In such a case, we would get more predictability in the White House and in the foreign policy, while Republicans would block the most disastrous ideas of a new president.

    Another issue is that the election results will probably be contested. Some analysts claim that it would be bad for the gold prices, as contested outcomes would delay the fiscal stimulus. However, the results' conflicts should also drive political uncertainty and support the save-haven demand for gold.

    Last but not least, I will reiterate what I said many times earlier. The presidential election’s relevance for gold prices may be overstated. After all, the gold’s fundamentals are still positive: the real interest rates remain in the negative territory, while the US dollar has recently weakened compared to the spring.

    Moreover, the fiscal stimulus will take place, despite who wins the elections. The only difference is that Democrats are willing to spend more. The fresh government spending will increase the fiscal deficit, and public debt should be even more favorable for gold. Furthermore, the COVID-19 cases resurgence increases the chances for higher stimulus or even for additional packages after some time. And of course, the Fed will buy most of these newly issued Treasuries, leading to further quantitative easing and a larger Fed balance sheet, which should also support the gold prices.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Elections Are Coming. Will Gold Win?

    October 22, 2020, 12:08 PM

    The US presidential elections are quickly approaching. So, what do they have in store for the price of gold?

    There are less than two weeks until the US presidential elections. Who will become the next POTUS? Biden or Trump? Well, according to the polls, the Democratic candidate will definitely move into the White House. As the chart below shows, Biden has an average polling lead of 7.9 percentage points over Trump.

    Recently, Biden’s advantage has been slightly decreased, but despite that, the man is still in a huge lead. The problem is that it doesn’t matter. Back in 2016, Hillary Clinton was also in a continuous lead according to polls, but she ultimately lost the race. Of course, Biden’s lead appears much higher, but still, the polls cannot be trusted, especially nationwide ones. The recent state-by-state polling date, as well as the predicting markets, also forecast Biden’s victory. But, everything can happen, and Trump can remain in the White House.

    What will happen if that’s the case then? Well, Trump’s triumph in 2016 sent gold prices lower – As the chart below shows, they declined from about $1,300 to almost $1,100 in December.

    However, the possibility of a 2016 rerun is not very likely now. And why is that? The first reason is that Trump’s victory was a surprise, making markets more cautious not to discount any particular outcome. Second, investors hoped that Trump, as a pro-business-oriented person, would cut red tape and taxes (what he actually did), accelerating economic growth as a result. However, he also began trade wars, put pressure on the Fed, and added uncertainty into the markets with his erratic behavior. His fiscal policy was entirely frivolous as well, resulting in a substantial budget deficits expansion, even before the pandemic occurred. Third, the macroeconomic and epidemiological situation was much different. We are currently in the second wave of coronavirus infections, which makes the economic recovery really fragile. The real interest rates are negative, while both the Fed’s balance sheet and the public debt have ballooned in response to the economic crisis.

    In such a macroeconomic environment, gold shouldn’t plunge after Trump’s victory. After all, if he wins, we could expect the current situation to continue (however, given Trump’s unpredictable behavior, I wouldn’t be surprised to see changes during his second presidency). The administration’s coping with the epidemic will remain unsatisfactory, while the public debt will stay on an upwardly-steep trajectory.

    Therefore, Biden’s triumph could bring more volatility into the marketplace. The consensus is that Biden will expand government spending even more than Trump did, triggering higher inflation as a result. If Democrats also take over the Senate, tax hikes are highly likely, but not immediate. For all of these reasons, Biden, as the next POTUS, is considered very positive for gold.

    But still, precious metals investors should remain cautious. Market narratives can change quickly. Before the 2016 presidential elections, analysts believed that Trump would be negative for the stock market, but it turned out that Wall Street quickly started to like Donald. Thus, Mr. Market could also decide that Biden could be a nice change after all, ending trade wars, etc.

    Another reason why we don’t have to see a replay of 2016 is the likelihood that the 2020 election results would be contested due to the massive use of absentee voting amid the coronavirus epidemic. Many times, Trump expressed his skepticism about mail-in ballots and refused to promise in advance that he will accept the results and hand over the power in a peaceful manner.

    Ergo, a remarkably close and contested result would cause a legal battle that leaves the outcome uncertain until January, when the new Congress certifies the election results. In other words, a contested election could throw the country into chaos, which should support the gold prices in the short-term.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • IMF Expects Precious Metals Index to Rise

    October 20, 2020, 7:52 AM

    IMF’s economic outlook for 2020 is less grim, but the more distant future is more worrisome. Therefore, the precious metals index is expected to rise.

    October’s edition of the IMF’s World Economic Outlook Report is out! The main message that the report conveys is that the IMF now predicts a less severe global contraction than in 2020 but a slower recovery in 2021. The global economy is projected to plunge 4.4 percent this year and rise 5.2 percent in the subsequent year, contrary to the -5.2 and 5.4 percent changes forecasted in June.

    Unfortunately, the prospects for emerging countries, excluding China, have worsened, and the economic decline for 2020 is projected to be greater than previously estimated. As a result, the pandemic will reverse the progress made since the 1990s in reducing global poverty.

    When it comes to the US economy, it is forecasted to contract by 4.3 percent this year before growing at 3.1 percent in 2021, compared to -8 percent and 4.5 percent seen a few months ago. However, the reasons for the celebration are limited, as these projections could be revised down soon.

    You see, the problem is that the second wave of the coronavirus cases (see the chart below) is hurting the employment rate again.

    As the chart below points out, the number of Americans who applied for unemployment benefits has recently risen to the highest level over the last few weeks.

    Even though the IMF’s near-term projection improved, another issue is that the baseline forecast envisages growth to slow down into the medium term, as the deep downturn this year will harm the supply potential. It means that the US will only modestly progress toward the 2020–25 path of economic activity projected before the epidemic.

    Most importantly, the subdued outlook for medium-term growth comes with a significant projected increase in public debt stock. What is worrying is that the reduced potential output also implies a smaller mid-term tax base than previously anticipated, making repaying debts even more difficult.

    Indeed, debt is an increasingly pressing problem all over the world, including the US. As a matter of fact, according to the IMF’s Fiscal Monitor, the debt-to-GDP ratio will stabilize next year everywhere but China and the US:

    In 2020, government deficits are set to surge by an average of 9 percent of GDP, and global public debt is projected to approach 100 percent of GDP, a record high. Under the baseline assumptions of a healthy rebound in economic activity and low, stable interest rates, the global public debt ratio is expected to stabilize in 2021, on average, except in China and the United States.

    However, public debt is not the only big problem in the US. Corporate indebtedness is also a worrying issue. In response to the coronavirus crisis, firms have also taken on more debt to cope with the reduced income and cash shortages, adding to the already high debt levels. Therefore, if the recovery is delayed, “liquidity pressures may morph into insolvencies,” according to the IMF’s Global Financial Stability Report. So far, the policy support limited the scale of bankruptcies. Still, the economists from the Bank of International Settlements predict that bankruptcies in advanced economies could rise from the baseline in 2019 by around 20 percent in 2021.

    Implications for Gold

    What does all the above mean for the gold market? Well, the improved near-term outlook for the US economy is not good news for the yellow metal. However, the slower expected growth in 2021 and beyond is becoming more positive. Notably, “the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks”. In other words, the uncertainties persist, which should support the safe-haven demand for gold as a result.

    It is perhaps why the IMF expects that the precious metals index will increase by 28.4 percent in 2020 and by an additional 10.4 percent in 2021 amid the elevated risks and dovish monetary policy.

    The growing coronavirus cases, subsequent worries about the already fragile recovery, US presidential election uncertainty have recently pushed gold prices above $1,900, as one can see in the chart below.

    What is most important here is that the price of gold managed to rise above $1,900 again, despite the declining odds of a new fiscal stimulus before the elections and the resulting S&P 500 Index decrease. Gold’s decoupling from the stock market would increase its role as a safe-haven asset.

    However, it might be the case that gold is just hovering around $1,900 right now, and it needs a fresh catalyst to continue its rally. Who knows, maybe the US presidential elections, which are likely to be contested, will provide such a trigger? We will elaborate on this later – stay tuned!

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

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