Gold prices are trading close to their highest level in six weeks, as investors remain cautious about the world economy and geopolitics despite record highs in the U.S. stock market.
Gold futures rose 0.3% to $1,485.60 a troy ounce on Monday in New York, extending their advance in December to 1.4%. The haven metal is on course to rise 16% over the course of 2019, which would be its biggest one-year rally since 2010.
“The fact that investors are still holding a decent chunk of gold gives you a good feeling as to how they are literally hedging their bets,” said Altaf Kassam, head of investment strategy for
Global Advisors in Europe, the Middle East and Africa. “Gold is definitely not looking like a bad place to store some value or have a hedge.”
Gold prices have kept climbing in recent weeks even though improving economic data and President Trump’s provisional trade deal with China have pushed U.S. stocks to a series of all-time highs. The yield on 10-year U.S. Treasury notes has also risen, from 1.782% at the start of December to 1.916% Monday. Higher bond yields typically make gold, which pays no interest, less attractive for investors to own.
Gold’s resilience shows that the limited trade pact—which Washington and Beijing haven’t so far signed—hasn’t dispelled concerns about the outlook for global growth. China’s Finance Ministry said Monday that Beijing would cut import tariffs on a range of goods in 2020, as the two sides attempt to complete their so-called phase-one agreement.
“Worries about the state of geopolitics and the world in general haven’t really gone away completely,” said
“There is still some concern about the fact the deal is yet to be signed,” she said.
Ms. O’Connell thinks gold prices are unlikely to fall significantly in the coming months because speculative investors who made short-term bets on the metal have already exited the market. That has left a “bedrock” of fund managers who intend to own gold for a longer period, she said, adding that demand for physical gold could rise ahead of Lunar New Year on Jan. 25.
David Govett, head of precious metals at London-based brokerage Marex Spectron, agrees. “The market is happily long,” he said. “It’s proper money in there.”
Money managers are still wagering that gold prices will rise, though they have trimmed the size of these bets since late September. As of Dec. 17, investors held 219,268 more long contracts than short contracts, the Commodity Futures Trading Commission said on Friday, up from 56,949 at the start of 2019.
Other precious metals are also having a strong end to the year. Silver rose 0.8% to $17.36 a troy ounce on Monday, while palladium has surged 10% in the fourth quarter.
Still, Mr. Kassam said that accelerating global growth means precious metals are unlikely to rise much further in 2020, barring an unexpected spike in inflation or weakening in the U.S. economy. State Street’s absolute-return strategy recently sold some gold futures and bought commodities such as oil and copper, which Mr. Kassam said are more likely to benefit if the world economy picks up speed next year.
Elsewhere in commodity markets on Monday, natural-gas futures dropped 4.6% to $2.22 a million British thermal units. The decline extends a recent slump and comes after Russia and Ukraine clinched a transit agreement for gas deliveries into Europe, warding off disruptions in the New Year.
U.S. crude-oil futures fell 0.4% to $60.23 a barrel, and copper futures fell 0.7% to $2.81 a pound.
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Things could be worse, but this doesn’t make them good.
The U.S. economic recovery slowed in September, according to economists.
But given the absence of new stimulus and the continued spread of COVID-19, this growth-at-a-slower-pace outcome suggests the recovery may continue even in the absence of a new stimulus package.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="And the fact that the economy isn’t in an outright contraction is a nice upside surprise given that fresh stimulus had been seen as essential for any recovery to continue just a few months back.” data-reactid=”22″>And the fact that the economy isn’t in an outright contraction is a nice upside surprise given that fresh stimulus had been seen as essential for any recovery to continue just a few months back.
“The pace of economic recovery has slowed in the last month, but that is arguably still an impressive result given the surge in coronavirus cases over the summer, and the more recent expiry of the enhanced unemployment benefits,” said Paul Ashworth, an economist at Capital Economics in a note on Thursday.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Retail sales, for instance, are back above pre-pandemic levels. But consumption in the services sector — such as at restaurants, where much of current unemployment is focused — has slowed at levels well below those that prevailed last year.” data-reactid=”24″>Retail sales, for instance, are back above pre-pandemic levels. But consumption in the services sector — such as at restaurants, where much of current unemployment is focused — has slowed at levels well below those that prevailed last year.
September’s data also showed a temporary pop from the Labor Day holiday, with economists at Bank of America Global Research noting that seated diners, according to OpenTable and TSA passenger data, both took a step back last week after a pop around the holiday.
Like Capital Economics, however, Bank of America also sees a recovery that continues to be quite resilient. “Bottom line: Labor Day has distorted the signal from many of the high frequency indicators that we track,” the firm said in a report published Wednesday.
“However, the New York Fed weekly economic index and Dallas mobility and engagement index continue to signal that the recovery has continued in September, but there is still a long road ahead before the economy is fully healed.”
Over at Oxford Economics, Gregory Daco notes that the firm’s proprietary recovery tracker index fell for week ended September 4 — the most recent week for which the firm has complete data — though most of this decline was due to the selloff in markets that tightened financial conditions.
Daco is also tracking concerning signs in the labor market, however, where gains slowed in early September at both the national and regional level.
“Employment continued to climb on stronger job openings and increased employment at small businesses, but momentum slowed,” Daco writes. Adding that, “regional labor market recoveries have lost strength, posing a risk to consumer spending absent additional fiscal aid.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="But given the mid-summer conversation about a “benefits cliff” the economy has now walked off with the CARES Act expiring at the end of July, a slowing but not contracting economy is a positive and surprising development.” data-reactid=”42″>But given the mid-summer conversation about a “benefits cliff” the economy has now walked off with the CARES Act expiring at the end of July, a slowing but not contracting economy is a positive and surprising development.
Which suggests a more durable recovery is possible if either a vaccine is available earlier than expected or fiscal stimulus is made available to consumers in the months ahead.
But these positive developments are far from an all-clear that the pandemic-induced downturn is behind us and that further diligence isn’t warranted.
“Activity in the housing sector has returned to its level at the beginning of the year, and we are starting to see signs of an improvement in business investment,” Federal Reserve Chair Jerome Powell said Wednesday. “The recovery has progressed more quickly than generally expected, and forecasts from FOMC participants for economic growth this year have been revised up since our June Summary of Economic Projections.”
“Even so, overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain,” Powell said.
Adding: “A full economic recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”
BENGALURU (Reuters) – The resurgence in coronavirus cases is the biggest threat to the recovering euro zone economy, according to a Reuters poll of economists, who say growth and inflation are more likely to create negative surprises over the coming year than positive ones.
Around 30 million people have been infected by the virus globally, and more than 900,000 have died, triggering some of the deepest recessions on record and breaking up supply chains around the world. COVID-19 global tracker https://www.reutersagency.com/en/coverage/covid-19-global-tracker
While a strong euro zone rebound is underway as lockdown restrictions have been eased and businesses reopened, France and Spain among others in the 19-member bloc are grappling with a virus resurgence.
That is raising the possibility of renewed restrictions and lockdowns.
“A flaring in the number of COVID-19 infections over the summer months has made it very clear that if there is no effective vaccine, growth will be handicapped,” said Peter Vanden Houte, chief economist at ING.
“There is also the fear of negative second-round effects once the current recession starts to be reflected in a swelling number of unemployed…(and) we cannot exclude higher precautionary savings dampening consumption.”
A return to where the economy was before the outbreak earlier this year is not expected until at least end-2022.
That comes despite the European Central Bank’s planned 1.35 trillion euros of pandemic-related additional asset purchases and an historic 750 billion euro recovery fund from the European Union due to kick in next year.
But the concern is that no new stimulus is on the horizon, other than national governments extending worker furloughs put in place early this year as they struggle with soaring debt.
Euro zone unemployment, which finally declined just before the coronavirus struck to where it was before the last financial crisis more than a decade ago, is already rising.
Ninety percent of economists, or 37 of 41 who responded to an additional question in the Sept. 15-17 Reuters poll, said a further surge in infections was the biggest risk to the euro zone economy over the coming year.
The remaining handful of respondents cited a strong euro, and no trade deal reached between the EU and United Kingdom when the Brexit transition period expires at the end of the year.
For a graphic on Reuters Poll: Euro zone economic outlook:
The Reuters poll of over 80 economists pointed to 8.1% quarterly growth this quarter, by far the strongest on record, following an historic 11.8% contraction in Q2. That forecast was unchanged from the August poll.
Quarter-on-quarter growth is then set to slow sharply to a still-strong 2.5% in Q4, but down from 3.0% predicted last month.
In a worst-case scenario, the economy was forecast to grow 4.5% in Q3, compared to 4.0% in the last poll. The worst-case for Q4 is now just a 0.4% contraction versus a 2.0% fall in the August poll.
But over 80% of respondents said the risks to both their euro zone growth and inflation forecasts were skewed more to the downside over the coming year.
“The virus is making new waves and the economy is still far from operating at pre-COVID levels in most sectors,” said Elwin de Groot, head of macro strategy at Rabobank, who expects no growth in the final three months of this year.
“But as governments are likely to shift towards more targeted measures – rather than blanket ones – the ‘true’ economic damage may only reveal itself in the next quarters.”
Most economists have remained pessimistic about the bloc’s growth outlook since the pandemic struck, and some have lowered their inflation views even further from last month.
The consensus for this quarter was 0.1% versus 0.3% predicted a month ago, followed by stagnation the next quarter. On a full-year basis, results were broadly in line with the ECB’s staff projections, at 0.4% for 2020, 1.0% for 2021 and 1.3% for 2022.
For a graphic on Reuters Poll: Euro zone economic growth and inflation outlook:
(Bloomberg) — India’s economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections.
Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from already historic lows as the virus continues to spread. Goldman Sachs Group Inc. now estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB is forecasting -9%. The Organisation for Economic Co-operation and Development sees the economy shrinking by 10.2%.
The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.
“While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve,” said Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd., a unit of Fitch Ratings Ltd. He now sees India’s economy contracting 11.8% in the fiscal year, far worse than his earlier projection of -5.8%.
Goldman Sachs’s latest growth forecast came last week after data showed gross domestic product plunged 23.9% in the April-June quarter from a year ago, the biggest decline since records began in 1996 and the worst performance of major economies tracked by Bloomberg.
While there are some signs that activity picked up following the strict lockdown, a strong recovery looks uncertain.
“By all indications, the recovery is likely to be gradual as efforts toward reopening of the economy are confronted with rising infections,” Reserve Bank of India Governor Shaktikanta Das told a group of industrialists Wednesday.
The central bank will likely release its own growth forecast on Oct. 1 when the monetary policy committee announces its interest rate decision. In August, the RBI said private spending on discretionary items had taken a knock, especially on transport services, hospitality, recreation and cultural activities.
The plunge in GDP, as well as ongoing stress in the banking sector and among households, will curb India’s medium-term growth potential. Tanvee Gupta Jain, an economist at UBS Group AG in Mumbai, estimates potential growth will slow to 6% from 7.1% year-on-year estimated in 2017.
What Bloomberg’s Economists Say
India went into the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, rebound in 2022, and slower path for growth as scars from the virus recession drag on the remaining years of the decade.
Click here to read the full report.
Abhishek Gupta, India economist
In addition to that, corporate profits have collapsed, putting a brake on investments, which in turn, will curb employment and growth in the economy.
India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has downgraded his fiscal year growth forecast to -8% from -6.2%. That will “reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth,” he said.
Still, foreign investor sentiment will likely return once the pandemic eases, said Todd Buchholz, a former White House economist and now author.
“The virus is seen as a temporary phenomenon,” he said in an interview. “Those investors who were lining up to invest in India in January 2020 will do so in 2021 also, and deregulation has to continue.”
(Updates with comment from economist in last paragraph.)
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