Sive Morten
Special Consultant to the FPA
- Messages
- 18,630
Fundamentals
The specific of current period stands with not common investors' reaction on changing of the Fed policy. In general it looks hawkish enough which is not very good for the gold market. Fast rising of the interest rates usually depresses gold as it loses its attractiveness comparing to interest-bearish assets. But these days, market reaction was a bit curious, as we've discussed last time, suggesting that markets have doubts that Fed will fulfill everything that it intends to. Mostly doubts rely to fragile economy conditions and too high inflation, suggesting that any, even minor tightening could hurt slow recovery which makes Fed to soften the policy. This explains no interest rates growth in response to Fed announcement and fast gold action last week.
As we've said yesterday, another hot topic that is coming on first stage is Omicron. Once it has appeared, it was an attempt to ignore or play this news out fast. But, based on recent events, it seems that this reaction breaks the plans of those who have launched it. Since any new variant is potential slow down of economy and longer term of recovery - this is supportive topic for the Gold market. And this lets us to keep short term bullish view. Longer-term expectations indeed depend of how consistent Fed will be to its promises.
Market overview
Gold prices edged higher on Monday, hovering near a three-week high hit in the previous session, as fears over the rapidly spreading Omicron coronavirus variant boosted the metal's safe-haven appeal. Physical gold demand in India showed a modest improvement this week as some buyers rushed to stores anticipating a further rise in domestic prices, while customers in other Asian hubs started bullion shopping for Christmas.
Benchmark 10-year U.S. Treasury yields dropped, lowering the opportunity cost of holding gold. U.S. Federal Reserve officials discussed raising rates as soon as March and starting to run down the central bank's balance sheet in mid-2022. However, the remarks barely changed the bond market's view that short-term interest rates could top out below the Fed's estimated peak
U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden's hopes of passing a $1.75 trillion domestic investment bill, said on Sunday he would not support the package, drawing a sharp rebuke from the White House. Manchin appeared to deal a fatal blow to Biden's signature domestic policy bill, known as Build Back Better, which aims to expand the social safety net and tackle climate change.
He then released a statement accusing his party of pushing for an increase in the debt load that would "drastically hinder" the ability of the country to respond to the coronavirus pandemic and geopolitical threats. The White House responded angrily, accusing him of breaking his promise to find common ground and get the bill passed.
The White House had hoped to keep negotiations cordial and private to avoid alienating Manchin, who represents West Virginia, a state that Biden lost to former President Donald Trump by almost 40 percentage points in the 2020 election. But many top Biden allies believe Manchin is damaging the Democratic president's political future.
European stocks retreated amid a global sell-off in equities, with investors fretting over the spectre of tighter COVID-19 curbs hitting the global economy as cases of the Omicron variant surge.
European Central Bank policymakers meeting last week sought a greater acknowledgement of inflation risks but were rebuffed by the bank's chief economist Philip Lane in an unusually robust debate. Central banks around the globe including the U.S. Federal Reserve have acknowledged that inflation may be more stubborn and persistent than once thought, but the ECB has stuck with its narrative that price growth will slip back below the target level on its own in late 2022.
In what was described as a robust and tense meeting, a significant number of policymakers questioned the quality of the ECB's projections, pointing to their checkered track record, and argued that inflation was at risk of ending next year higher than the ECB's expectation.
The closest ECB President Christine Lagarde came to such an acknowledgement was when she said "there is possibly an upside risk" in response to a reporter's question.
"The statement didn't quite give back the flavour of our debate," a second source said.
Even as Lagarde sought consensus, four policymakers opposed the ECB's package of measures that dialled back but extended stimulus. Germany's Jens Weidmann, Luxembourg's Gaston Reinesch and Austria's Robert Holzmann voted against the measures while Belgium's Pierre Wunsch, who did not have voting rights, also expressed his opposition.
The sources said that several people questioned the quality of the ECB's forecasts, which have been subject to large revisions for years, and that staff models appear little equipped to calculate with the pandemic's once-in-a-lifetime shock. Indeed, the bank's 2022 inflation projection was nearly doubled to 3.2% last week, but projections further out were raised only modestly with price growth seen below target in both 2023 and 2024.
Policymakers appeared especially bothered by the inherent tendency of the models to revert to the long-running average as the economy is likely to undergo a fundamental change in the post-pandemic years. Since Thursday's policy meeting, the central bank governors of Germany, Portugal and Lithuania all warned in public that inflation was at risk of exceeding the ECB's projection.
Policymakers who voted against the package were also unhappy with the length of the ECB's commitment, including its pledge to reinvest cash from maturing bonds through 2024.
British Prime Minister Boris Johnson said on Monday he would tighten coronavirus curbs to slow the spread of the Omicron variant if needed, after the Netherlands began a fourth lockdown and as other European nations consider Christmas restrictions.
Commodities outperformed other assets this year as a recovery from the pandemic boosted demand though gold's poor showing dented investor appetite. Heading into 2022, commodities, which often perform well late in economic cycles, are due to remain competitive with equities as global growth extends its upward trek, analysts said.
In commodities, coffee has been a standout, rocketing 84%. Benchmark U.S. crude oil has surged 40%, copper has added 21% while gold has fallen, sliding 5%, partly due to expectations of interest rate rises.
Gold is a top focus among general investors and its erosion after gaining 25% in 2020 has hit flows into investment vehicles. U.S. exchange traded funds (ETFs) in commodities have seen net outflows of $5.5 billion this year after inflows of $41 billion in 2020, Morgan Stanley data showed.
In 2022, top commodity consumer China is due to see weaker growth, but the government is likely to balance a crisis in the property sector with moderate stimulus, analysts said.
Next year, as logistics disruptions ease, global commodity demand should be robust as industry catches up with restocking, but this may be offset by more plentiful supply of many raw materials.
Gold prices were stuck in a narrow trading range on Wednesday as investors headed into year-end holidays, with a steady improvement in risk appetite countering safe-haven demand fuelled by the rapidly spreading Omicron COVID-19 variant. Although Omicron concerns abound, the lack of overtly distressing symptoms provides some relief, which is a reason for a move towards riskier assets, said Stephen Innes, managing partner at SPI Asset Management.
U.S. Treasury yields were steady near one-week highs, weighing on gold as higher yields increase the opportunity cost of holding bullion, which pays no interest.
Official data on Wednesday showed Britain's economy expanded more slowly than previously thought in the July-September period, nudging UK shares lower.
Investors took stock of data showing U.S. economic growth slowed sharply in the third quarter amid a flare-up in COVID-19 infections, although activity has since picked up, putting the economy on track to record its best performance this year since 1984
Container shipping giant Maersk on Wednesday agreed to buy Hong Kong-based LF Logistics for $3.6 billion in an all-cash deal that will add hundreds of warehouses in Asia and help it expand beyond its core ocean freight business. The deal is one of the group's largest takeovers to date and follows a series of acquisitions including logistics and e-commerce firms, a freight forwarder specialised in air freight and its smaller rival Hamburg Sud.
Record high container freight rates stemming from the impact of the pandemic have boosted big shipping companies and prompted deal-making by Maersk and its rivals, including CMA CGM and Mediterranean Shipping Company (MSC). With chaotic conditions in the global supply chain, big companies have been willing to pay a premium for more reliable and integrated freight solutions.
With a network of 223 warehouses, including 49 in China, and around 10,000 employees in 14 Asian countries, LF Logistics provides land-based services such as warehousing and trucking to more than 250 global customers. With the deal, Maersk will own 549 warehouses globally and increase total warehouse floor capacity by 40%, creating the world's seventh largest contract logistics company behind the likes of UPS, DHL and Kuehne+Nagel.
Ocean freight costs are likely to remain high in 2022 as investors and regulators scramble to accelerate decarbonization of the shipping industry and companies grapple with green financing, sources say. Shipping, which transports about 90% of world trade and accounts for nearly 3% of the world's CO2 emissions, is under growing pressure from environmentalists to deliver more concrete action including a carbon levy.
Last month countries including the United States at the COP 26 climate summit pushed for the IMO to adopt a zero emissions target by 2050. So far, its goal is to reduce overall GHG emissions from ships by 50% from 2008 levels by 2050.
Financing the path ahead is another hurdle. Shipping will need $2.4 trillion to achieve net-zero emissions by 2050, with around $500 billion required by 2030, according analyst estimates.
Gold prices edged up on Thursday in thin year-end trading, as the safe-haven dollar weakened following encouraging studies on the Omicron COVID-19 variant and rising optimism about the global economic outlook.
Tensions between the United States and Russia have heightened, with U.S. officials this week considering export control measures to disrupt Russia's economy should Russia invade Ukraine
Gold-backed ETFs (gold ETFs) experienced net inflows of 13.6 tonnes (t) (US$838mn, 0.4% AUM) in November, the first month of positive flows since July. Inflows into North America and Europe well exceeded outflows from Asia, which saw negative flows for the first time since May. Global gold ETF holdings rebounded from year-to-date lows, increasing to 3,578t (US$208bn) as investment demand for larger gold ETFs returned amid decades-high inflation and heightened market volatility.
Conclusion:
So, as we've said recent events with Omicron presentation in mass media and "rules" how market society has to treat it makes us think that gold gets the support in short-term. Markets should keep holding under the pressure of new limitations curb, lockdowns and other stuff of this kind. Any news that promise economical weakness are supportive to the gold as they reduce inflation expectations and decrease necessity of aggressive Fed steps. So, Omicron for some time should provide tonic effect on the gold market.
By taking a look in longer perspective, we're not occasionally bring here Maersk deal and Eco plans on global shipping sector. The pandemic, "green" plans and consolidation of shipping business in the hands of western companies are the parts of the same chain. In our previous reports we've explained in details how US masterly uses pandemic and control of the global shipping business to struggle against its major economical rival - China. We already see results of this. Big companies intend to open plants in the US and Japan (instead of China), Chinese economy has difficulties showing slowdown of production, rising inflation and unemployment, while PBoC has cut the rate which hasn't happened for the very long time, pushing renminbi to the new lows. Next step is consolidation of the global shipping for total control and Maersk deal is important step. While ecological plans of CO2 control in shipping business de facto makes impossible to use alternative shipping companies for Chinese companies. In general all this stuff with CO2 control and planet overheating is bullsh*t, but it is great tool of geopolitical war. All "green" technologies are very expensive and can't be widely adopted by emerging countries and their companies. At the same time the US and EU could put the restrictions that you can't buy/sell or consume in any way, or ship and deliver any goods (and food!) that are not "green". So, the US and EU markets soon will be closed for any emerging markets goods and companies. US and EU banks will be forbidden to finance any projects if they are not "green". It means that emerging markets and companies will loose west money. Speaking on the shipping business - it will be forbidden to ship in EU or US cargoes by "non-green" ships. Absolutely the same as it has become with the planes once.
What will happen with the Chinese economy if they will lose US and EU consumers and access to the western capital market? They just not survive. At some breakeven point, it starts taking irreversible changes In Chinese economy, which, like a spiral, starts pushing country in depression. Pandemic is called to provide an information background for this process. Taking it all together, even despite some tensions between US and Russia concerning Ukraine etc., - gold perspective looks optimistic. Because the destruction of the China as world's largest supplier leads to strong inflation, just because of goods' deficit. Interest rates, even with anticipation of 2.1-2.25% Fed rate, will not be enough to compensate return, i.e. real interest rates with high degree of certainty remains negative for few years, at least until 2024. And only when the US will return global domination in production, situation should start stabilizing. This is our view by far. Only unexpected destructive political process inside the US could break this plans. When the US will be unable to complete started trade war. It is difficult to predict, but it is not as impossible as it seems at first glance. Anyway, right now we see how the US is constantly moving with its plan that already brings first fruits.
The specific of current period stands with not common investors' reaction on changing of the Fed policy. In general it looks hawkish enough which is not very good for the gold market. Fast rising of the interest rates usually depresses gold as it loses its attractiveness comparing to interest-bearish assets. But these days, market reaction was a bit curious, as we've discussed last time, suggesting that markets have doubts that Fed will fulfill everything that it intends to. Mostly doubts rely to fragile economy conditions and too high inflation, suggesting that any, even minor tightening could hurt slow recovery which makes Fed to soften the policy. This explains no interest rates growth in response to Fed announcement and fast gold action last week.
As we've said yesterday, another hot topic that is coming on first stage is Omicron. Once it has appeared, it was an attempt to ignore or play this news out fast. But, based on recent events, it seems that this reaction breaks the plans of those who have launched it. Since any new variant is potential slow down of economy and longer term of recovery - this is supportive topic for the Gold market. And this lets us to keep short term bullish view. Longer-term expectations indeed depend of how consistent Fed will be to its promises.
Market overview
Gold prices edged higher on Monday, hovering near a three-week high hit in the previous session, as fears over the rapidly spreading Omicron coronavirus variant boosted the metal's safe-haven appeal. Physical gold demand in India showed a modest improvement this week as some buyers rushed to stores anticipating a further rise in domestic prices, while customers in other Asian hubs started bullion shopping for Christmas.
Benchmark 10-year U.S. Treasury yields dropped, lowering the opportunity cost of holding gold. U.S. Federal Reserve officials discussed raising rates as soon as March and starting to run down the central bank's balance sheet in mid-2022. However, the remarks barely changed the bond market's view that short-term interest rates could top out below the Fed's estimated peak
U.S. Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden's hopes of passing a $1.75 trillion domestic investment bill, said on Sunday he would not support the package, drawing a sharp rebuke from the White House. Manchin appeared to deal a fatal blow to Biden's signature domestic policy bill, known as Build Back Better, which aims to expand the social safety net and tackle climate change.
He then released a statement accusing his party of pushing for an increase in the debt load that would "drastically hinder" the ability of the country to respond to the coronavirus pandemic and geopolitical threats. The White House responded angrily, accusing him of breaking his promise to find common ground and get the bill passed.
The White House had hoped to keep negotiations cordial and private to avoid alienating Manchin, who represents West Virginia, a state that Biden lost to former President Donald Trump by almost 40 percentage points in the 2020 election. But many top Biden allies believe Manchin is damaging the Democratic president's political future.
European stocks retreated amid a global sell-off in equities, with investors fretting over the spectre of tighter COVID-19 curbs hitting the global economy as cases of the Omicron variant surge.
European Central Bank policymakers meeting last week sought a greater acknowledgement of inflation risks but were rebuffed by the bank's chief economist Philip Lane in an unusually robust debate. Central banks around the globe including the U.S. Federal Reserve have acknowledged that inflation may be more stubborn and persistent than once thought, but the ECB has stuck with its narrative that price growth will slip back below the target level on its own in late 2022.
In what was described as a robust and tense meeting, a significant number of policymakers questioned the quality of the ECB's projections, pointing to their checkered track record, and argued that inflation was at risk of ending next year higher than the ECB's expectation.
The closest ECB President Christine Lagarde came to such an acknowledgement was when she said "there is possibly an upside risk" in response to a reporter's question.
"The statement didn't quite give back the flavour of our debate," a second source said.
Even as Lagarde sought consensus, four policymakers opposed the ECB's package of measures that dialled back but extended stimulus. Germany's Jens Weidmann, Luxembourg's Gaston Reinesch and Austria's Robert Holzmann voted against the measures while Belgium's Pierre Wunsch, who did not have voting rights, also expressed his opposition.
The sources said that several people questioned the quality of the ECB's forecasts, which have been subject to large revisions for years, and that staff models appear little equipped to calculate with the pandemic's once-in-a-lifetime shock. Indeed, the bank's 2022 inflation projection was nearly doubled to 3.2% last week, but projections further out were raised only modestly with price growth seen below target in both 2023 and 2024.
Policymakers appeared especially bothered by the inherent tendency of the models to revert to the long-running average as the economy is likely to undergo a fundamental change in the post-pandemic years. Since Thursday's policy meeting, the central bank governors of Germany, Portugal and Lithuania all warned in public that inflation was at risk of exceeding the ECB's projection.
Policymakers who voted against the package were also unhappy with the length of the ECB's commitment, including its pledge to reinvest cash from maturing bonds through 2024.
British Prime Minister Boris Johnson said on Monday he would tighten coronavirus curbs to slow the spread of the Omicron variant if needed, after the Netherlands began a fourth lockdown and as other European nations consider Christmas restrictions.
Commodities outperformed other assets this year as a recovery from the pandemic boosted demand though gold's poor showing dented investor appetite. Heading into 2022, commodities, which often perform well late in economic cycles, are due to remain competitive with equities as global growth extends its upward trek, analysts said.
In commodities, coffee has been a standout, rocketing 84%. Benchmark U.S. crude oil has surged 40%, copper has added 21% while gold has fallen, sliding 5%, partly due to expectations of interest rate rises.
Gold is a top focus among general investors and its erosion after gaining 25% in 2020 has hit flows into investment vehicles. U.S. exchange traded funds (ETFs) in commodities have seen net outflows of $5.5 billion this year after inflows of $41 billion in 2020, Morgan Stanley data showed.
In 2022, top commodity consumer China is due to see weaker growth, but the government is likely to balance a crisis in the property sector with moderate stimulus, analysts said.
Next year, as logistics disruptions ease, global commodity demand should be robust as industry catches up with restocking, but this may be offset by more plentiful supply of many raw materials.
Gold prices were stuck in a narrow trading range on Wednesday as investors headed into year-end holidays, with a steady improvement in risk appetite countering safe-haven demand fuelled by the rapidly spreading Omicron COVID-19 variant. Although Omicron concerns abound, the lack of overtly distressing symptoms provides some relief, which is a reason for a move towards riskier assets, said Stephen Innes, managing partner at SPI Asset Management.
U.S. Treasury yields were steady near one-week highs, weighing on gold as higher yields increase the opportunity cost of holding bullion, which pays no interest.
Official data on Wednesday showed Britain's economy expanded more slowly than previously thought in the July-September period, nudging UK shares lower.
Investors took stock of data showing U.S. economic growth slowed sharply in the third quarter amid a flare-up in COVID-19 infections, although activity has since picked up, putting the economy on track to record its best performance this year since 1984
Container shipping giant Maersk on Wednesday agreed to buy Hong Kong-based LF Logistics for $3.6 billion in an all-cash deal that will add hundreds of warehouses in Asia and help it expand beyond its core ocean freight business. The deal is one of the group's largest takeovers to date and follows a series of acquisitions including logistics and e-commerce firms, a freight forwarder specialised in air freight and its smaller rival Hamburg Sud.
Record high container freight rates stemming from the impact of the pandemic have boosted big shipping companies and prompted deal-making by Maersk and its rivals, including CMA CGM and Mediterranean Shipping Company (MSC). With chaotic conditions in the global supply chain, big companies have been willing to pay a premium for more reliable and integrated freight solutions.
With a network of 223 warehouses, including 49 in China, and around 10,000 employees in 14 Asian countries, LF Logistics provides land-based services such as warehousing and trucking to more than 250 global customers. With the deal, Maersk will own 549 warehouses globally and increase total warehouse floor capacity by 40%, creating the world's seventh largest contract logistics company behind the likes of UPS, DHL and Kuehne+Nagel.
Ocean freight costs are likely to remain high in 2022 as investors and regulators scramble to accelerate decarbonization of the shipping industry and companies grapple with green financing, sources say. Shipping, which transports about 90% of world trade and accounts for nearly 3% of the world's CO2 emissions, is under growing pressure from environmentalists to deliver more concrete action including a carbon levy.
Last month countries including the United States at the COP 26 climate summit pushed for the IMO to adopt a zero emissions target by 2050. So far, its goal is to reduce overall GHG emissions from ships by 50% from 2008 levels by 2050.
Financing the path ahead is another hurdle. Shipping will need $2.4 trillion to achieve net-zero emissions by 2050, with around $500 billion required by 2030, according analyst estimates.
Gold prices edged up on Thursday in thin year-end trading, as the safe-haven dollar weakened following encouraging studies on the Omicron COVID-19 variant and rising optimism about the global economic outlook.
Tensions between the United States and Russia have heightened, with U.S. officials this week considering export control measures to disrupt Russia's economy should Russia invade Ukraine
Gold-backed ETFs (gold ETFs) experienced net inflows of 13.6 tonnes (t) (US$838mn, 0.4% AUM) in November, the first month of positive flows since July. Inflows into North America and Europe well exceeded outflows from Asia, which saw negative flows for the first time since May. Global gold ETF holdings rebounded from year-to-date lows, increasing to 3,578t (US$208bn) as investment demand for larger gold ETFs returned amid decades-high inflation and heightened market volatility.
Conclusion:
So, as we've said recent events with Omicron presentation in mass media and "rules" how market society has to treat it makes us think that gold gets the support in short-term. Markets should keep holding under the pressure of new limitations curb, lockdowns and other stuff of this kind. Any news that promise economical weakness are supportive to the gold as they reduce inflation expectations and decrease necessity of aggressive Fed steps. So, Omicron for some time should provide tonic effect on the gold market.
By taking a look in longer perspective, we're not occasionally bring here Maersk deal and Eco plans on global shipping sector. The pandemic, "green" plans and consolidation of shipping business in the hands of western companies are the parts of the same chain. In our previous reports we've explained in details how US masterly uses pandemic and control of the global shipping business to struggle against its major economical rival - China. We already see results of this. Big companies intend to open plants in the US and Japan (instead of China), Chinese economy has difficulties showing slowdown of production, rising inflation and unemployment, while PBoC has cut the rate which hasn't happened for the very long time, pushing renminbi to the new lows. Next step is consolidation of the global shipping for total control and Maersk deal is important step. While ecological plans of CO2 control in shipping business de facto makes impossible to use alternative shipping companies for Chinese companies. In general all this stuff with CO2 control and planet overheating is bullsh*t, but it is great tool of geopolitical war. All "green" technologies are very expensive and can't be widely adopted by emerging countries and their companies. At the same time the US and EU could put the restrictions that you can't buy/sell or consume in any way, or ship and deliver any goods (and food!) that are not "green". So, the US and EU markets soon will be closed for any emerging markets goods and companies. US and EU banks will be forbidden to finance any projects if they are not "green". It means that emerging markets and companies will loose west money. Speaking on the shipping business - it will be forbidden to ship in EU or US cargoes by "non-green" ships. Absolutely the same as it has become with the planes once.
What will happen with the Chinese economy if they will lose US and EU consumers and access to the western capital market? They just not survive. At some breakeven point, it starts taking irreversible changes In Chinese economy, which, like a spiral, starts pushing country in depression. Pandemic is called to provide an information background for this process. Taking it all together, even despite some tensions between US and Russia concerning Ukraine etc., - gold perspective looks optimistic. Because the destruction of the China as world's largest supplier leads to strong inflation, just because of goods' deficit. Interest rates, even with anticipation of 2.1-2.25% Fed rate, will not be enough to compensate return, i.e. real interest rates with high degree of certainty remains negative for few years, at least until 2024. And only when the US will return global domination in production, situation should start stabilizing. This is our view by far. Only unexpected destructive political process inside the US could break this plans. When the US will be unable to complete started trade war. It is difficult to predict, but it is not as impossible as it seems at first glance. Anyway, right now we see how the US is constantly moving with its plan that already brings first fruits.
