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Gold Climbs to Seven-Year High as Virus Spurs Hunt for Havens

This article from Bloomberg may be of interest to subscribers. Here is a section:

“The minutes suggest that the bar to ease policy is clearly lower than to lift rates,” Colin Hamilton, an analyst at BMO Capital Markets, said in an emailed note Thursday. “In particular, they back up Powell’s recent comment that policymakers would not tolerate continued below-target inflation. This commentary was viewed as supportive gold.”

Spot gold advanced for a third straight day, rising as much as 0.7% to $1,623.73 an ounce. Holdings in global exchange-traded funds backed by bullion have risen to a fresh record, and are on course for a sixth weekly expansion, the longest streak since November.

“It looks like a self-fulfilling prophecy,” said ABN Amro Bank NV strategist Georgette Boele. As prices broke out, the move has attracted more investors into gold, she said.

Gold could reach $1,650 over the coming weeks, according to UBS Group AG’s Global Wealth Management unit. “With U.S. equity valuations elevated, any further upsets could see another bout of volatility, a further rally in government bonds and a higher gold price,” analysts Wayne Gordon and Giovanni Staunovo said in a note.



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Chinese Companies Say They Can't Afford to Pay Workers Now

This article by Lulu Yilun Chen and Jinshan Hong for Bloomberg may be of interest to subscribers. Here is a section:

“A week of unpaid leave is very painful,” said Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood. “I don’t have enough income to cover my spending this month.”

Across China, companies are telling workers that there’s no money for them -- or that they shouldn’t have to pay full salaries to quarantined employees who don’t come to work. It’s too soon to say how many people have lost wages as a result of the outbreak, but in a survey of more than 9,500 workers by Chinese recruitment website Zhaopin, more than one-third said they were aware it was a possibility.

The salary freezes are further evidence of the economic hit to China’s volatile private sector -- the fastest growing part of the world’s second-biggest economy -- and among small firms especially. It also suggests the stress will extend beyond the health risks to the financial pain that comes with job cuts and salary instability. Unsurprisingly, hiring has all but ground to a halt: Zhaopin estimates the number of job resumes submitted in the first week after the January outbreak was down 83% from a year earlier.

“The coronavirus may hit Chinese consumption harder than SARS 17 years ago,” said Chang Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped consumption.”



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BHP Sees Next Six Weeks as Key For Virus Hit to Commodities

This article by David Stringer for Bloomberg may be of interest to subscribers. Here is a section:

If the impact of the outbreak can’t be contained this quarter, annual growth forecasts will need to be revised down, Huw McKay, BHP’s vice president of market analysis and economics, said Tuesday in a blog post. “This would then flow directly through to lower commodity demand and price expectations.”

BHP forecasts China’s growth to slow to about 6% this year and as low as 5.75% in 2021 based on a swift recovery from the virus outbreak. In a worst-case scenario that combined a lingering impact from the virus and a re-escalation of trade war tensions, the nation’s economic expansion this year could slip to 5.5%, the miner said.

Goldman Sachs Group Inc. and Macquarie Group Ltd. are among banks who’ve cut China growth forecasts for both the first quarter and the full year as a result of the outbreak. China’s gross domestic product will grow 4% in the first quarter, according to the median of 18 forecasts since Jan. 31, which would be the lowest level since 1990.



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Aureus Fund Plc Factsheet

Thanks to a subscriber for this factsheet which may be of interest.

The Aureus Fund (Ireland) plc. is an accumulating fund under Irish Law. The physical allocated gold investment will at all times between 51% and 60% of the Net Assets. Although the focus is on Gold, the Aureus Fund aims to invest in physical precious metals (Silver, Platinum and Palladium) to diversify risk. As an ancillary investment policy the investment manager has the option to invest in gold derivates for hedging and gold mining funds.



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Email of the day on gold's upside potential

The long run outlook for gold is very encouraging. Even in the short run, competitive devaluations by CBs are supportive.  Coronavirus is also supportive.  Do you think that investing in a gold ETF is a reasonable hedge against a short-term correction on the S&P500? Are frightened investors likely to seek the security of gold or are they more likely to flock to cash?

 



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Email of the day on gold miners:

I hope you are well & not working too hard!

Just completed the ‘corporate action’ required to take the shares for Sibanye. To me all your excellent recommendations are just exotic names & lines on a screen, and whatever spare brain processing power I have these days perhaps best left for other things.

Please may I ask a favour? Do you have any ideas for an ETF or even generalist fund which I could use to provide gold miner ‘sector’ exposure? In broad terms would you suggest something holding larger cos or junior miners? If you have any thoughts, I would be grateful. I know you cannot give advice & it would never be construed in that way.

On gold miners shares per se, can you clarify a point? I was talking to the manager of a UK listed investment trust the other day, managed on what used to be called an ‘absolute return’ basis, which actually has delivered a consistent return. They look at things very simply & believe that at some unknown point in the future, there will simply be a tipping point where the discount rate applied (across all asset class valuations) spikes.  They don’t speculate how this will unfold. I think I can guess what this will do to Netflix or Tesla but in broad terms, what happens to gold miners? Do you take the view that in essence the (future) value of their gold in the ground will likely mitigate a higher interest rate assumption? Perhaps what I am really meaning to ask is that if the equity bull market bubble bursts, do you have a view on what might happen to gold miners as a sector in terms of correlation?  

I really don’t like to ask you questions like this as you probably add me to the list of bears to assist with the calculation of your contrarian market indicators,

All the very best



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China's Record Car-Sales Slump Throws a Curve Ball on Palladium

This article by Justina Vasquez for Bloomberg may be of interest to subscribers. Here is a section:

Output in the world’s largest auto market could be cut by more than 1.7 million cars should the spreading virus resulted in more shutdowns of manufacturing facilities across China, lasting into mid-March, according to an IHS Markit estimate last month.

The auto industry accounts for more than 80% of demand for the precious metal, according to a Johnson Matthey report released Wednesday. That makes it difficult for the market to ignore the shutdowns in China.

“The effects on the wider, global supply-chain are also starting to show,” refiner Heraeus Holding GmbH said in a research note. “Plants across Europe and the wider Asia region are also at risk now because of problems sourcing Chinese-made parts.”



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2019-nCoV Acute Respiratory Disease Response

This report from McKinsey & Company may be of interest to subscribers. Here is a section:

Leading indicators to monitor

Situation: Confirmation of sustained transmission outside of China
Implication: Most cases outside China have been linked to recent travelers. If evidence emerges of ongoing acquisition of disease in patients who did not travel or have contact with someone returning from China, the potential public health impact of the disease will rise significantly.

Situation: Rapid increase in case numbers in affected countries
Implication: Many unknowns remain. Rates of transmission in asymptomatic individuals, viral mutations, and decreased efficacy of protective measures, for example, could lead to increases in infection rates. Weaker health systems, in particular, could be at higher risk. This would increase uncertainty on potential recovery.

Situation: Signals of supply chain restart
Implication: Signals of supply chain restart in China would be an early sign of recovering markets. Early markers could include government reports, social media chatter, firms conversations and / or communications with their customers.

Situation: Changes in consumer spending indicators
Implication: In epidemic settings with containment measures, consumer spend decreases. Changes in consumer spending indicators, especially in China, India, and broadly globally, may point to potential recovery and / or protracted nature of the situation.

Situation: US treasury yield curve
Implication: Overall market fluctuations and associated treasury yield curve, especially in the US, will point to overall confidence in market and expected trajectory. Increasingly negative curves may hint to longer economical impacts.
 



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Email of the day on rare earth metal miners

Maybe 18 months ago you were looking at Rare Earths outside China. One you mentioned in Australia - Alkane Resources - has recently perked up considerably on gold exploration but also on the likely demerger of its Rare Earths project at Dubbo. I'm a shareholder so noticed(!) You might like to re-visit some time as it is a happy graph for holders



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RBA Sees Unemployment at 4.75% Next Year Amid Virus Concerns

This article by Michael Heath for Bloomberg may be of interest to subscribers. Here is a section:

The RBA reiterated Governor Philip Lowe’s comments Wednesday that the current balance in the economy favored a policy pause, but this could change in the event of a weakening in the labor market and inflation moving away from target. It acknowledged that coronavirus is “a significant near-term risk” to the outlook for China and Australia’s other key trading partners.

The currency ticked down to 67.23 U.S. cents after the release from 67.29 just prior, and was trading at 67.20 cents at 12:03 p.m. Traders are pricing in a less than 50% chance of a rate cut this half, before climbing to 55% in July and higher thereafter.

Australia’s linkages to China are broad and deep: it’s the biggest buyer of Australian iron ore and Chinese tourists and students lead those sectors, taking more than one-third of exports from Down Under.

The RBA is basing its expectations of a quick rebound from the virus on the SARS epidemic of 2003. But it is clear that this will require rapid containment of the outbreak.



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