Marius Paun | London, UK | Senior dealer | Friday 26th June 2020
Markets Concerned About The Second Wave Of Covid-19 And Global Trade Tensions
As if worries of a second wave was not enough, the US government is to suspend certain non-immigration work visas through to the end of 2020 and to extend bans on certain green cards. The Trump administration said the move will open up 525,000 jobs as a consequence.
Early on Tuesday, the White House trade adviser Peter Navarro sent the world markets crushing after declaring the trade deal with China is over. It appears that was not the case… President Trump weighed in later tweeting ‘China Trade Deal is fully intact’. A bit embarrassing, especially when later on Navarro dropped another one ‘Trump may impose retaliatory tariffs if China is not buying enough… US lobsters’ ?!!!
The US markets are on alert despite the ongoing good run for technology stocks as coronavirus hospitalizations surged to record highs for a few days in a row this week. What is more worrying for the markets is that the US wants to impose tariffs on over $3 billion worth of exports from EU.
A private survey of more than 3000 firms called China Beige Book showed it expects a contraction for China’s economy for 2020. One of the main points was that slow global demand still weighs on growth.
Bank of England governor Andrew Bailey defended the central bank easing of monetary policy saying on Sky News that the UK government would have struggled to fund itself without expanding the quantitative easing. He explained the situation in March was more severe than the credit crisis of 2009.
Elsewhere, the UK Prime Minister Boris Johnson announced on Wednesday that the lockdown measures will be further relaxed. Starting with 4th of July, a whole set of industries like hospitality, tourism, pubs, cinemas, libraries will reopen.
Meanwhile, in Europe, the German central bank released its monthly report saying they expected the German economy to shrink by nearly 10% in the second quarter of 2020. The stimulus package prepared by the government should help the economic recovery and at the same time boost consumer and business sentiment. Nonetheless the Eurozone flash services PMI for June came in at 50.3 surpassing expectations for 45.2.
After a few weeks of going back and forth, gold prices finally broke higher early this week and reached a fresh seven year high at $1779.35. It could not test the $1800.00 mark, so retraced slightly, but remains within reach of that important hurdle. Gold-backed ETFs holdings have now reached a new all-time high of 3,510 tonnes.
The US crude inventories data showed a build of 1.75 million barrels for last week surpassing expectations for +1.5 million barrels. WTI futures were trading just above $38.00 mark going into the weekend after reaching a weekly high of $41.61 on Tuesday.
Marius Paun | London, UK | Senior dealer | Thursday, 25th June 2020
After a few weeks of going back and forth, gold prices finally broke higher early this week and came within reach of the crucially important $1800.00 level. It has managed this despite a stronger US dollar which in turn was supported by a number of factors. A spike in the number of Covid-19 cases in the United States and Latin America, as well as renewed concerns about rising trade tensions, have fuelled demand for safe-haven currencies yet again. In addition, amid the reopening process, there were many medical scientists in Europe warning of the second wave of coronavirus.
Markets have turned a bit jittery lately, worried that the V-shaped economic recovery could be in jeopardy. The International Monetary Fund weighed in earlier in the week slashing its global output forecast and said there could be more damage from the pandemic than initially expected. The toughening stance of the White House towards various European countries, saying it is considering changing tariff rates for a number of products, did not help the mood in the markets either.
These geopolitical challenges, some old some new, have kept gold prices near the recent records. Although in a normal year, during the summer months, gold usually takes a breather, it seems it would take a lot of courage to short gold now. We seem to be in the beginning of a new monetary world order where the reactions and interventions to the coronavirus are stretching to the max the debt load of many nations. Investing in government bonds is increasingly questioned as a safe option when the chunk of negative yields is now above $10 trillion. And whilst these events have all happened in the recent past, they are fresh in our minds.
Many may point-out that on the short-term, deflation is still the immediate danger, as the recovery is feeding through slowly. And yet investor’s sentiment is about what happens next; can we stay one step ahead of the real economy? If the velocity of money returns nearly as fast as it evaporated during the pandemic, inflation could become a real prospect. Central banks will try to tackle it but with so much extra debt in the world, hiking interest rates would be almost impossible. As such, gold might become a very sought-after investment.
Recently, we saw the US stocks coming close to all-time record high and, in the case of the technology sector, even reaching fresh highs. A simple look at Bloomberg charts comparing gold mining companies with the S&P 500 shows these ratios reached their lowest level in late 2015 and again at the end of 2019. So, there is plenty of potentials still there and it is the reason they have done rather well since the mid-March selloff.
The World Gold Council monthly report tells us that ‘gold ETFs inflows through May (623 tonnes) outpaced records for any calendar year, in only 5 months’. The highest ever annual inflow was previously 591 tonnes of gold in 2009. There were 154 tonnes added last month alone – net inflows of $8.5 billion and global holdings have now reached a new all-time high of 3,510 tonnes.
The Council added that in the past year assets in global gold-backed ETFs have gone up over 90%. UK-based gold funds now amount to 48% of European assets and over 20% of global assets and the trend points to a rising share.
Gold trading was a bit choppy for the past few weeks as markets were trying to find enough momentum to push upwards. It broke to a new 7-years high on Tuesday and again on Wednesday when it reached $1779.35. It has not quite tested the $1800.00 mark yet. The price sits above the 6 and 21 moving averages and both indicators point upwards.
On the downside, the first target is support around $1750.00 handle. If sellers manage to push gold below that, there will plenty more at $1700. It acted as both good support and resistance from 2011 to 2013 so is a level closely watched. On the way up, the trend needs to be confirmed by a close above yesterdays’ high. The bulls will then look to test resistance around psychologically important $1800 mark which held very well during 2011 – 2012. Beyond that there is little resistance to all-time record high reached on September 2011.