Example of the 'BullionVault Weekly Update'

BullionVault Weekly Update

Monday, 17 December 2018

In the markets this morning...

 

 

For up-to-the-minute live spot gold and silver prices use the BullionVault chart

3 Charts for New Year 2019

from Adrian Ash
Director of Research, BullionVault
 

THANK YOU so much for taking the time to answer our Weekly Update's end-2018 reader survey.

 

And if you didn't...well...never mind.

 

Because 2019 is coming to get you anyway!

 

"Gloomy gold pundit foresees chaos, says you must buy gold today" is hardly a headline worth reading, I know.

 

But next year could well bring several things to the boil...

 

...from the US-China trade war (now moving to medieval-style hostage-taking)...

 

...to China's own long-delayed economic slowdown...

 

...or the long-simmering "populist" backlash against globalization and its "elites"...

 

...plus a serious risk of conflict returning to the former Yugoslavia, if not Ukraine, as murder and mayhem rule in Yemen...

 

...and of course a long overdue setback to world stock markets and financial assets more broadly.

 

No, the art market hasn't blinked so far. Auction prices set fresh records in 2018.

 

And no, gold isn't guaranteed to rise in price if these issues do spark trouble for investors.

 

But on balance, owning a little physical bullion...securely stored at low cost in perhaps a different country...and ready to sell the moment you need...looks as wise as ever as 2019 comes into view.

 

To recap, gold prices have held pretty firm in 2018. Trading just 5% lower versus the Dollar, gold has now risen back to last New Year's Eve for Euro and UK investors.

 

Hence the first of our 3 charts today.

 

It shows gold priced in the Dollar against how gold has traded for everyone outside the US currency...rebased to that cold January day in 2017 when Donald J.Trump took office in Washington DC.

 

Gold price in US Dollars (gold) vs. price rebased for US Dollar Index on day of Trump's  Jan 2017 inauguration

As you can see, the price of gold in 2017 surged in US Dollar terms compared to how it moved for non-Dollar investors.

 

By the start of 2018 this "Trump bump" reached more than $120 per ounce.

 

But over the rest of 2018 the Dollar rose sharply on the FX market, pulling the gold price for US investors back into line with where the metal now stands for all non-US investors.

 

Given this year's strong Dollar in fact, gold has been remarkably strong in 2018...

 

...especially as global consumer demand weakened towards a 10-year low...

 

...while gold mining output set a new all-time high...

 

...and interest rates rose while world stock markets set or approached new all-time record highs.

 

Little wonder that hedge funds and other "hot money" traders bet against gold prices like never before this year.

 

Odd that their bearish betting did so little to dent the price. 

Gold vs 10-year US interest rates (green) and stocks (blue)

That's why gold's price split from silver looks telling.

 

The grey metal is currently down 12% for the year versus the Dollar...more than twice the 2018 drop in gold prices.

 

And silver, of course, finds far more of its demand from industrial uses.

 

Platinum has its own issues (the diesel scandal, a lack of output cuts in South Africa, the runaway train of sister metal palladium).
 

But tracking the drop in silver, platinum prices have now lost 15% in USD terms since New Year's Eve.
 

That also suggests industrial activity worldwide is weaker than when we began this year.

 

The gold price in contrast has found support from 2018's worsening geopolitical backdrop.

 

Hence the reluctance of current owners to sell. But strong new buying remained absent.

 

So what might spur a fresh surge of investment?

 

"War," says more than one cheerful soul responding to our end-2018 survey.

 

"Systemic crisis...recession...Brexit calamity...monetary collapse," add other care-free readers.

 

And against those happy reasons to buy and hold, what might drive Update readers to sell all of their precious metal?

 

"The second coming," says one wag.

 

"World peace," says another.

 

But in the main, it will take a strong price rise...or an ugly price drop...for many Updatereaders to sell their entire holding...

 

...while the single most common response was "Death".

 

If you can push on through to January, dear reader, we'll look in the New Year at how to prepare for that happy day...arranging things to make a sale or transfer a bit smoother for your relatives.

 

Meantime, one new trend born in 2018 already looks as tired and spent today as the year itself:

 

Rising interest rates.

 

You'll remember, for instance, how no central bank anywhere cut interest rates in September...the first such month since before the global financial crisis.

 

No one cut rates again in October...nor November.

 

But already this month, hyperinflation basket-case Argentina has pulled its key interest lower...

 

...and Mozambique did the same last week.

 

A straw in the wind? Gold and the other precious metals pay no interest. So other things equal, higher returns on cash-in-the-bank make gold look less appealing.

 

Other things rarely stay equal however. Most important for bullion is the pace of inflation in the cost of living.

 

So here's our third and final chart for 2018...

 

It shows gold versus the rate of interest offered by 10-year US Treasury bonds, adjusted by how interest-rate traders think inflation will run.

Gold vs. real rates (10-year yields adjusted by inflation, inverted)

To show how it tends to move with gold prices, the real 10-over-10 rate is inverted...crudely...by deducting it from 1.

 

So a negative reading on the left-hand axis is in fact positive...

 

...meaning that real interest rates actually crept above zero this autumn for the first time since 2011.

 

Still with me? Pay attention then to gold's response. Because instead of sinking as real US rates rose positive, gold first held its ground even against the rising US Dollar in the first half of the year, and then edged higher over the last few months.

 

Meaning? Gold doesn't buy the idea of higher US rates ahead...

 

...certainly not higher interest rates in real inflation-adjusted terms.

 

A similar doubt is also expressed by the different rates offered today by shorter and longer-term US government bonds...

 

The so-called "yield spread" has become "inverted" on 3-year versus 5-year Treasuries, while the more closely-watched spread of 10-minus-2 year yields has fallen nearer to zero than any time since right before the global financial crisis.

 

Take note: The US Fed meets tomorrow and will announce its December decision on Wednesday.

 

Almost everyone expects Jerome Powell and his team will stick to their plan...

 

...raising overnight rates from 2.25% to 2.50%...

 

...and no doubt earning a fresh Twitter-storm of abuse from the Commander-in-Chief in the White House.

 

But what really matters is what Powell then says about the Fed's plans for 2019...

 

...especially as lots of other economic indicators are saying that the long US expansion starting with the huge QE and zero-rates stimulus of New Year 2009 is starting to flag.

 

We'll find out what Powell thinks in Wednesday's press conference and "dot plot" forecasts.

 

But the chances of 2 or more Fed hikes in 2019 have sunk according to traders betting on the interest rate market.

 

This time last month they saw a 73.0% chance. Now that's fallen to 55.2%.

 

Over in the Eurozone, great comic timing yet again, with Mario Draghi's team at the ECB finally ending new QE...and threatening maybe to raise interest rates sometime next year...even as inflation slows and the ECB itself cuts its GDP forecast for the 19-nation economic bloc.

 

The Bank of England here in London meantime faces a certain "risk event" in March 2019 which will, I think, only stop UK interest rates falling back if the Pound hits a genuine currency crisis...sinking on the FX market as everyone tries to get their money out.

 

More happy thoughts, I do hope you're enjoying all this.

 

So net-net in 2019 for gold?

 

It's hard not to expect continued or rising support from geopolitics...plus a weaker challenge from stock markets or rising interest rates...both of which failed to dent the metal much in 2018 anyway.

 

Nor did the Managed Money's big, ineffectual 2018 bearish betting against gold.

 

Or so it seems peering down on the glistening Thames from here at BullionVault today.

 

We'll take a look at silver and platinum in the New Year...

 

...plus full results from our latest Update reader survey.

 

Back on Monday 7 January. Until then, please do try to spare friends and family your own oh-so-cheerful 2019 outlook.

 

Trust me, I know it won't be easy.

 

Adrian Ash

Director of Research, BullionVault

 

Key data and market events:

 

  • New Zealand inflation edges back (ANZ gauge) as food prices slip, manufacturing growth firm (Business NZ PMI) after sales badly in Q3...

  • Australia mortgage lending rebounded October after house prices fell Q3, business conditions + confidence both down in November (NAB survey), consumer confidence sunk this month (Westpac) as inflation expectations jump to 4.0%...

  • Japan Q3 GDP fell 2.5%, now money-supply growth slowing hard, machine-tool orders sink 17% per year, corporate goods inflation slows from 3.0% to 2.3%, but non-manufacturing outlook still sunny (Tankan survey)...

  • China house-price inflation rallied above 9% per year last month as new bank lending jumped, but consumer prices slowed, retail growth weakest since 2003, industrial output weakest in 3 years...

  • India industrial output jumps, wholesale price-inflation slowest in 3 months but current-account deficit with rest of world widened in Q3, trade deficit wider than analysts forecast in November...

  • Eurozone services + manufacturing sectors both slowing (Markit PMI surveys), Germany sentiment badly negative 9th month running (ZEW survey), investor confidence suddenly sinks to 2014 levels (Sentix survey)...

  • United Kingdom industrial output shrinks, trade deficit grows as wage-growth hits 3.3% per year to match Retail Price Inflation, house prices negative (RICS survey)...

  • United States job openings surged in October (JOLTS) but jobless benefit claims now rising, small-business optimism falls again after 'core' producer prices rose faster at 2.7% per year in November excl. fuel + food, consumer-price inflation ticks up to 2.2%. Retail sales grow sharply and industrial output up, but monthly government budget deficit leaps to $205bn, manufacturing + service sectors both retreating further from 2018 booms (Markit first-flash Dec' PMI surveys)...

  • Canada industrial capacity use slipped from 11-year high in Q3, new building permits slipping again but new home-building jumps...

  • Central-bank watch 2 changes in 16 decisions as Russia raised to 7.75% "to limit inflation risks", Mozambique cut rates after "slow growth" forecasts. European Central Bank held rates and "ended QE" as promised...

  • Central banks 'til 7 Jan 16 decisions this week (including the all-important US Fed on Weds, then Japan, Sweden, UK, Czech + Mexico on Thurs), 5 next week, no major banks scheduled for 1st week of 2019...

  • So far Monday Eurozone consumer-price inflation slips back to 1.9% per year, UK house-sellers asking just 0.7% more this month than Dec' 2017...

  • Later today US housing market activity (NAHB index) + long-term investment flows (TIC)...

  • Tuesday New Zealand business confidence (ANZ), Australia new home sales, Germany business sentiment (Ifo Institute), US home-building + permits, Canada manufacturing shipments...

  • Wednesday New Zealand Q3 current account deficit + Q4 consumer sentiment (Westpac), Japan trade data, Germany producer prices, UK inflation + house prices (Land Registry) + industrial orders (CBI survey), US current Q3 account deficit + sales of existing homes, Canada inflation...

  • Thursday New Zealand Q3 GDP revision + November's trade data + credit card spending, Australia jobs data, UK retail sales, US weekly jobless benefit claims + Philly Fed manufacturing index, Canada jobs data (ADP estimate)...

  • Friday Japan inflation ("core" last at 0.4% per year), France consumer spending, Italy + Netherlands and then Eurozone consumer confidence, UK Q3 GDP revision + latest government deficit, US Q3 GDP revision + durable goods orders + personal income/spending/inflation (PCE measure) + consumer sentiment (Univ. of Michigan), Canada retail sales + GDP from October...

  • Christmas Week Japan retail sales, jobs data, Tokyo inflation + construction; India FX reserves; Germany inflation, Ireland retail sales; UK household borrowing + mortgage lending; US national activity (Chicago Fed), consumer confidence + sales of new homes...

  • New Year 2019 China kicks of manufacturing activity surveys (PMI); India government deficit + bank lending; Eurozone bank lending + Germany jobs data; US jobs manufacturing costs (ISM), vehicle sales, monthly jobs data on Weds 2 Jan (private ADP estimate) and Fri 4 Jan (official non-farm payrolls)...

PLEASE NOTE: This email is published to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.