Hindu Celebration Could Push Gold Price Higher By 10 Percent

Strengths

·         The best performing metal this week was palladium, up 4.23 percent on worries over supply issues due to sanctions on Russia. Gold traders are bullish this week on gold prices as ETF holdings backed by gold saw inflows for 12 days straight, according to Bloomberg.

·         Jewelers in India, the second largest gold consuming nation in the world, expect a 10 percent rise in gold sales on key Hindu celebration day Akshaya Tritya, despite higher gold prices this year. Last year, sales of gold jewelry on the holiday were between 22 and 24 metric tons. Although bullion demand was down 5.4 percent in China in the first quarter as compared to the same time last year, demand for gold jewelry was up 5.6 percent to 180.50 tons.

·         Turkey collected 1.34 tons of gold this week in a gold-based bond issuance, according to state-run Anadolu Agency. The Turkish Central Bank also transferred approximately 220 tons of its gold reserves stored in the U.S. Federal Reserve System back to Turkey yesterday. Two other banks are in the process of transferring 95 tons of gold reserves from the U.S. over to Turkey.

Weaknesses

·         The worst performing metal this week was gold, down 0.70 percent on a slightly stronger dollar this week.  Although bullion saw big inflows this week, the VanEck Vector Gold Miners ETF saw investors withdraw $132.8 million from the fund, reducing assets by 1.6 percent, reports Bloomberg. This was the fifth-straight day of outflows totaling $373.5 million. The Empire Fed survey was weaker than expected with the “future” component of the survey dropping from 44.1 to 18.3 on bearish trade sentiment.

·         This week China’s holdings of U.S. Treasuries grew to the most in six months by $8.5 billion to $1.18 trillion in February, reports Bloomberg. China remains the largest creditor of the U.S., followed by Japan. Speculation is growing that China is increasing its holdings in order to use it as a bargaining chip in trade negotiations with the U.S.

·         Just two weeks after launching, the Secured Overnight Financing Rate (SOFR), which was meant to replace Libor, has hit some bumps. The Federal Reserve Bank of New York said that it mistakenly included certain transactions in the settings for 10 days and will not be revising the incorrect data. Bloomberg writes that SOFR is a rate based on overnight loans collateralized by U.S. Treasuries.

Opportunities

·         Several fund managers and prominent investors recommended this week to invest in gold. Kotak Mutual Fund said that investors should allocate to gold as a “risk cover” amid expected higher volatility. Fritz Folts, chief investment strategist and managing partner at 3EDGE Asset Management, said that “We will definitely have more volatility this year. And gold can help us there.” Bloomberg writes that hedge fund manager Said Haidar predicts that the U.S. economy growth will not benefit the U.S. dollar, which is potentially good for gold. The S&P Global Ratings recently took three positive rating actions in the gold sector, upgrading a few big gold companies to stable from negative. This is a very positive sign to investors that gold companies are becoming more investable.

·         The U.S. dollar will potentially continue to weaken, due to a tweet from President Trump saying that Russia and China are “playing the currency devaluation game.” In Bloomberg View, Robert Burgess writes that the U.S. relies on foreign debt to finance the deficit and if investors believe that the dollar will weaken, they might be less likely to buy debt. Some argue that the current administration wants a weaker dollar, as Viraj Patel, a currency strategist at ING Groep NV, said on Monday that the president’s comments are “another implicit signal of the administration’s desire for a weaker U.S. dollar – especially against major trading partners.”

·         According to Bloomberg, Trump administration officials are looking into using a Cold War era defense act to help keep struggling coal and nuclear power plants open. The Defense Production Act, allows the president to effectively nationalize a private industry to ensure the nation has resources that could be needed during a war or after a disaster. This Act was last used in 2001 to keep natural gas flowing to California to avoid blackouts.

Threats

·         Morgan Stanley said this week that investors might need to prepare for a downside as the end of the current economic cycle is near and U.S. markets are overpriced. Hedge funds saw two consecutive months of sinking returns, the first back-to-back loss since early 2016. Investors are claiming that the VIX, or the CBOE Volatility Index, is rigged, reports Bloomberg. On Wednesday the index spiked as much as 11 percent in an hour. More speculation arose when a trade of 13,923 puts on the S&P 500 took place just before opening, when the previous daily trading volume never exceeded 75 contracts.

·         In a bleak outlook, the U.S. debt-to-GDP ratio is projected to grow higher than that of Italy by 2023 to 116.9 percent, according to data from the International Monetary Fund. These figures are renewing the focus on a deteriorating budget after the passage of $1.5 trillion in tax cuts. World debt has also grown to a record amount of $164 trillion, which could make it more difficult for countries to respond to recessions or refinance debts.

·         The Treasury yield curve from five to 30 years flattened on Wednesday to just 29 basis points, the narrowest spread since 2007, writes Bloomberg. According to St. Louis Fed President James Bullard, the central bankers should debate the yield curve now and he believes that it could invert within six months, which would be an ominous sign for growth.

http://www.usfunds.com/