The financial markets have been on a wild roller coaster ride over the last 48 hours. Yesterday the Fed announced it has cut its Fed funds rate by ¼%. This put strong and dramatic pressure on gold prices as the most active December futures contract fell to a low of $1412.10. This also sent U.S. equities lower yesterday as the Dow traded down 466 points at the low before recovering slightly. As we have noted recently, in anticipation of a Fed rate cut both stocks and gold had moved in tandem.
Typically, a strong equities markets creates a risk-on market sentiment which causes market participants to move some of their investment dollars from the safe haven asset class into stocks. Inversely when stocks trade under pressure, many market participants move money from equities into a safe haven asset such as gold or the U.S. dollar.
One exception to this rule is when the Federal Reserve raises or cuts interest rates. Rate cuts by the Fed are seen as extremely bullish for both asset classes. Recently in anticipation of Fed action resulting in a rate cut traders had taken both stocks and gold prices dramatically higher in tandem.
The inverse correlation between gold and equities returned today as market participants reacted to a series of tweets sent out by President Trump. Today he announced his plan to put a 10% tariff on the remaining $300 billion of goods and products coming from China into the United States beginning on September 1st. This announcement created strong selling pressure in U.S. equities and strong bullish market sentiment in gold prices. This decoupled the tandem move, and signaled a return to the negative correlation most commonly seen in these two asset classes.
As of 10:15 PM EDT gold futures are trading up $18.40 with the most active futures contract fixed at $1456, a 1.3% gain. Not only is today’s closing price the highest value in gold this year, it is also the first-time gold has reached this price point since 2013. A close well above resistance which occurred at around $1440, the recent highs in gold.
U.S. equities continued to move lower for the second day in a row, with the Dow Jones Industrial Average closing down 280.85 points and currently fixed at 26,583.42.
Our upside target for gold remains at $1480. This is based on a .618 % Fibonacci extension of the major rally which began at the end of May, until the end of June when gold pricing found resistance at $1442 per ounce. The former resistance of $1442 should now become support for gold pricing.
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Wishing you as always, good trading,
Telus email still down heading to the fifth day
For the fifth day in a row, customers with Telus.net emails are still facing disruptions as the company works to fix ongoing issues.
“Telus technicians continue to work to restore access. This is a fluid situation, and we are doing everything we can to stabilize all servers to bring our final clients online,” said a spokesperson in a statement. “This is taking longer than we would like as remaining issues are very complex. We are incredibly sorry.”
Customers began noticing an issue with their emails on Aug. 15, and while the majority of users had service restored by the next day, plenty have still been left without the service.
The issues are said to affect customers in the Lower Mainland, Kelowna, Vernon, Edmonton, Calgary and more. The majority of customers that have reported an issue with Downdetector say only their email has been affected, but some say there is also a problem with internet usage.
Ontario Cannabis Store returns $2.9M in CannTrust products
VAUGHAN, Ont. – CannTrust Holdings Inc. says the Ontario government‘s cannabis retailer is returning all of the company’s products it has because they do not conform with the terms of its master cannabis supply agreement.
The company says the total value of the products is about $2.9 million.
The move by the provincial retailer comes as CannTrust faces problems with Health Canada.
The federal regulator found problems at the company’s greenhouse in Pelham, Ont., earlier this year and later raised issues regarding a manufacturing facility in Vaughan, Ont.
Health Canada has placed a hold on CannTrust’s inventory including approximately 5,200 kg of dried cannabis and the company has also instituted a voluntary hold of approximately 7,500 kg of dried cannabis equivalent.
CannTrust noted that the Ontario retailer operates independently of Health Canada, which has not ordered a recall on any of the company’s products.
OPEC downgrad its forecast for global oil
In its latest report, OPEC only slightly downgraded its forecast for global oil demand, lowering it to 1.10 million barrels per day (mb/d) for 2019, down only a minor 0.04 mb/d from a month earlier. That estimate could end up being too optimistic, and OPEC itself said the forecast is “subject to downside risks stemming from uncertainties with regard to global economic development.”
Notably, OPEC said that global supply could grow by 1.97 mb/d this year, significantly outpacing demand growth. Still, that figure is down by 72,000 bpd from a previous estimate, due to lower-than-expected production growth in the U.S., Brazil, Thailand and Norway.
In another worrying sign of a brewing supply surplus, OPEC said that oil inventories in OECD countries rose by 31.8 million barrels in June from a month earlier, rising to 67 million barrels above the five-year average. In other words, just as OPEC+ was meeting to extend the production cuts for another 9 months, inventories were rising, an indication of an oversupplied market.
On a slightly positive note (for OPEC), the group revised up demand for its crude by 0.1 mb/d for both 2019 and for 2020. Still, it said that demand for its oil, often referred to as the “call on OPEC,” would drop to 29.4 mb/d in 2020, down from 30.7 mb/d this year.
Based on those numbers, OPEC+ is staring down a serious supply glut next year absent further action. The group can either stick with current production levels and risk another market downturn, or it can swallow further production cuts.
What happens next is largely outside of OPEC’s hands. Recent price movements are almost entirely the result of shifting sentiments regarding the global economy. “The yo-yoing on the oil market continues and the oil price remains highly prone to fluctuations. After sliding massively on Wednesday, Brent was hit hard once again [Thursday], shedding over 3% in a matter of hours,” Commerzbank said in a note on Friday. “The oil price currently remains at the mercy of expectations for the global economy, and is thus caught between economic concerns and hopes that the trade dispute might end soon.”
U.S. retail sales eased some concerns on Friday, but the global backdrop remains worrying, and a steady release of data from around the world continues to point in a negative direction. Just in the last week, there was the inverted yield curve for U.S. treasuries, a stock market and currency meltdown in Argentina, volatile oil prices, and widespread fears of a global economic recession.
Even the U.S. is not immune, despite mostly healthy data up until recently. For instance, Wall Street analysts have slashed their outlooks for corporate earnings for the third quarter in recent weeks. “Everyone in April and through the beginning of May thought that the economy was going to get better in the back half of the year, trade war was going to sort of settle, certainly not escalate,” Eastman Chemical Chief Executive Mark Costa said on an earnings call last month, as the WSJ reported. “And now we’re just in a very different world where I don’t think that’s true…There’s not a lot of signs of economic recovery coming in the second half.”
Ultimately, the U.S. will struggle to outrun a global slowdown. The World Trade Organization (WTO) painted a bleak picture for the third quarter, saying that trade volumes are “likely to remain weak.” The global auto sector has been hit hard this year, with a sharp contraction in China, India and Germany. The U.S. auto industry is starting to show some signs of strain as well.
The problem for oil prices is that the outlook for 2020 is already pretty bearish, with supply growth outpacing demand. That’s the base case right now. But the odds of economic recession continue to grow, which threatens to make the supply overhang that much worse.
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