The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective Territory

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th February.

A total of 56 stats were monitored, following the 72 stats in the week prior.

Of the 56 stats,  26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.

Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.

When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…

The Dollar Spot Index fell by 1.21% to end the week at 98.132.

Out of the U.S

It was a quiet first half of the week, with economic data limited to February consumer confidence figures.

A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.

Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.

In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.

While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.

At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.

Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.

Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.

The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.

It wasn’t enough to support the U.S equity markets or the Dollar, however.

Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.

In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% respectively.

Out of the UK

It was a particularly quiet week on the economic calendar.

There were no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.

A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.

Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.

With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…

In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.

Out of the Eurozone

It was a relatively quiet start to the week economic data front.

Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.

On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.

Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.

With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.

Key stats included French consumer spending and German unemployment numbers.

While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.

The stats failed to influence, however, as the markets punished the Dollar through much of the week.

Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…

On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…

That is in stark contrast to the outlook towards FED monetary policy…

For the week, the EUR rose by 1.65% to $1.1026.

For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.

Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.

RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.

On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.

With the numbers skewed to the negative, risk aversion added to the downside in the week.

Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.

For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.

For the Kiwi Dollar

It was a relatively quiet start to the week on the economic colander.

4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.

Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.

While trade exports to China rose further, January’s trade was not impacted by China’s shut down.

Business confidence figures, however, suggested some doom and gloom ahead.

With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…

For the Loonie

It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.

A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.

Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.

At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.

While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.

RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.

With the BoC in action next week, the chances of a rate cut certainly jumped in the week…

The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front.

The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.

For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.

In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.

The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.

With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.

A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.

Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.

The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.

Out of China

There were no material stats to provide direction ahead of private sector PMIs on the weekend.

A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.

In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.

The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.

In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.

US Stock Market Overview – Stocks Drop and the VIX Surges as the Fed Stands Ready

US stocks continue to tumble on Friday, with the major averages down more than 3% at the lows of the session. Some of the larger tech stocks like Microsoft and Apple slammed lower but rebounded to close well off their lows. Gold prices tumbled on Friday, pulling down the metal mining stocks. The Fed was on the tape mid-day saying that they stand ready to lower rates if need be. The market is currently pricing in 3-rate cuts in 2020 with one coming in March of 2020.

All sectors in the S&P 500 index were lower on Friday, led down by Utilities, Energy was the best performing sector in a down tape. Inflation came out in line with expectations, but this did not affect the 10-year treasury yields which dropped to another all-time low. There is little word from the White House about how they will coordinate a response to the coronavirus which is also keeping inventors skittish. The VIX volatility index hit multi-year highs climbing up to 50%, the highest level since 2008.

Inflation Rises

The Personal-consumption expenditures rose 0.2% in January from December, according to the Commerce Department. Personal income advanced 0.6% last month, the largest gain in 11 months. Expectations were for a  0.2% increase in spending and a 0.4% gain in personal income. Gains in income and spending came against the backdrop of still-modest inflation pressures. The price index for personal consumption expenditures, rose 0.1% on the month and was up 1.7% from a year earlier. Year-over-year price gains were 1.5% in December and 1.3% in November.

Mortgages Continue to Buoy Housing Sales

The spread of the coronavirus and the fears associate with it sent bond yields tumbling, the average rate on the popular 30-year fixed mortgage fell to 3.23%, an 8-year low. The lower yields are buoying housing sales. The 30-year fixed loosely follows the yield on the 10-year Treasury, which is now at a record low.

Gold Price Prediction – Prices Tumble as Momentum Turns Negative

Gold prices were hammered on Friday as a crowded trade lost many weak longs. Prices sliced through short term support levels, despite declining US yields but a steady dollar. Generally, gold prices are negatively correlated to the 10-year yield but the correlation has broken down as gold drop in tandem with US yields. US personal consumption expectations rose in January to an 11-month high.

Technical Analysis

 

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Gold prices were hammered on Friday, as trades quickly exited pushed the yellow metal down more than 4%. Volatility on gold prices surged higher but eased into the close. Why concerns over the spread of the coronavirus continue to weigh on riskier assets, gold has been immune and up until Friday used as a safe-haven asset. Prices sliced through support near the 10-day moving average which is now seen as resistance at 1,615. Prices bounced near the 50-day moving average at 1,569. Prices have also slipped through an upward sloping trend line that comes in near 1,571.

Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram also generated a crossover sell signal, crossing through the zero index level. The downward sloping trajectory of the MACD histogram points to accelerating negative momentum.

Inflation Rises

The Personal-consumption expenditures rose 0.2% in January from December, according to the Commerce Department. Personal income advanced 0.6% last month, the largest gain in 11 months. Expectations were for a  0.2% increase in spending and a 0.4% gain in personal income. Gains in income and spending came against the backdrop of still-modest inflation pressures. The price index for personal consumption expenditures, rose 0.1% on the month and was up 1.7% from a year earlier. Year-over-year price gains were 1.5% in December and 1.3% in November.

Gold Weekly Price Forecast – Gold Markets Crater for The Week

Gold markets initially shot higher during the week, reaching towards the $1700 level. That is an area that of course offers a lot of resistance, as it is a large, round, psychologically significant figure. By turning around the way it has, it looks extraordinarily negative as we sliced through the $1600 level. By breaking through there, it shows quite a bit of negativity and a real lack of follow-through. At this point, it’s likely that the market continues to go a little bit lower, or perhaps kills time by going sideways. A simple bounce back is a bit much to ask, at least without some type of stabilization.

Gold Price Predictions Video 02.03.20

The market is still in an uptrend, but this is clearly a “shot across the bow” for those who would be bullish of gold. Longer-term, it’s probably very likely that we do continue to the upside in a bit of a safe haven bit, but a lot of forced liquidation has been going on this week, as margin calls are being fired off in other markets. Large funds will have to sell profitable positions to keep afloat, and that may be what’s going on with the gold market currently. It certainly isn’t US dollar strength, because quite frankly there is none. At this point, it’s likely that the market continues to be very jittery and nervous, so if you are looking to go long, waiting for some type of supportive daily candlestick is probably the best way to go. That, or perhaps a recapturing of the $1600 level.

Gold Price Forecast – Why Are Gold Prices Crashing with Stocks?

Gold prices are crashing as we head into Friday’s close. The Fed may use its emergency powers to slash interest rates as soon as this weekend. A surprise rate cut could stabilize gold prices and stop this unjustified liquidation.

Trying to make sense of these markets is impossible. If I told you U.S. stocks would crash 14% in one week – how high would you expect gold prices to jump? $50…$100…$150? I would guess at least $100 but probably more. Nope – gold is down over $50.00 on Friday.

All week I’ve been monitoring the Fed Watch Tool for clues regarding interest rates. On Tuesday, the odds for a March 18th rate cut started at 14.4%, by the close they had jumped to 27.7%. As we head into the weekend, they’re now proposing a 100% chance for a 0.25% cut and a 47.2% chance for a 0.50% cut.

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Note: The odds for a .50% cut were 0% yesterday. The Fed could move as soon as this weekend. 

I try not to cry manipulation, but it’s hard to justify this week’s price action as natural. It seems several forces were at play, much out of our control. It appears someone wants the Fed to ease, and this week’s crash makes that possible. Sadly, many investors were hurt and shaken out of their positions in the process.

I don’t have a crystal ball, and I’m not sure what will happen next week. But I do know governments are running out of options to stimulate economies; interest rates are at all-time lows. All they have left is money printing, and that will lead to much higher precious metal prices.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit https://goldpredict.com/

Gold Price Forecast – Forced Selling Of Yellow Metal

Gold markets fell hard during the session on Friday, as we have sliced through the $1600 level. By doing so, the market shows signs of extreme weakness as we have not only broken through a big figure, but we have also touched the 50 day EMA. Looking at this candlestick, it is extraordinarily negative, but at this point if we break down below the 50 day EMA it could unwind this market even further. The $1550 level will be the next target, and then eventually the $1500 level. At this point, any rally needs to clear the $1600 level on a daily close to begin buying. If we do that before the weekend, then it might be a bit of speculation that the server banks around the world looking to cut interest rates, but quite frankly that is still a gas.

Gold Price Predictions Video 02.03.20

If the market gets news over the weekend, this could be an extraordinarily volatile place to be. Quite frankly, pay attention to the $1600 level to determine which direction you should be trading, but you won’t be able to have that information until the markets open up. This weekend could be extraordinarily important for gold, so to suggest that we know what’s going to happen before all of the news gets out of the way would quite frankly be ineffectual. The world is certainly teetering on the edge of panic, and eventually that should help gold but we don’t know where the bottom is quite yet.

Gold Price Forecast – Did Gold Prices Peak?

Since January, we’ve been calling for Gold to reach $1700 by March. Prices hit $1691.70 on Monday before reversing sharply. The massive liquidation in stocks this week may have forced a premature top in Gold.

On Monday I wrote, Gold Nears $1700 Target as Stocks Plummet. Our Gold Cycle Indicator jumped to 405 and entered maximum topping, suggesting the 6-month cycle was nearing maturity. I assumed prices would stretch a little higher, but the ensuing market liquidation proved overwhelming.

Correction Target

If the gold cycle peaked at $1691.70, then I won’t expect the next 6-month low until late April or early May. Preliminary analysis supports a decline to $1480 – $1520.

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What could change our outlook? If stocks continue to plummet, then the Fed will be forced to cut interest rates, and that could put gold back on its feet. With the S&P 500 down 13.40% for the week (as I write), the Fed could announce something as soon as this weekend.

Don’t Let The Bull Throw You

Despite all the volatility, precious metals and miners are in long-term bull markets. There will be pullbacks and corrections, sometimes deep – don’t let these events shake you. The bull is powerful and will do its best to throw you. Grit your teeth, cinch down that flank strap, and decide not to be thrown.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit https://goldpredict.com/

 

Gold Daily News: Friday, February 28

The gold futures contract lost 0.04% on Thursday, as it continued to fluctuate after retracing most of Friday’s-Monday’s rally. The daily trading range remained relatively big yesterday, as it reached over 25 dollars. It shows how high short-term volatility is. Investors were buying the safe-haven asset amid corona virus outbreak, economic slowdown fears recently. But gold has retraced a big chunk of that rally after bouncing off $1,700 mark.

Gold is 1.3% lower this morning despite stock market’s sell-off and the mentioned corona virus fears. What about the other precious metals? Silver lost 1.00% on Thursday. Today silver is 4.0% lower after breaking below January lows. Platinum lost 1.02% on Thursday, and right now it is trading 3.3% lower. The metal broke below $900. Palladium was the only gainer again, as it advanced by 1.68% yesterday. However, it is 3.9% lower this morning.

The financial markets went risk-off since last Friday, as corona virus fears came back again. Yesterday’s Durable Goods Orders release was mixed, the Preliminary GDP was in line with expectations and Pending Home Sales number was better than expected. However, stocks accelerated their sell-off and the S&P 500 index lost a stunning 4.42%.

Today we will have the Personal Spending and Personal Income numbers release at 8:30 a.m. Then at 9:45 a.m. the Chicago PMI will be released. There will also be Michigan Consumer Sentiment number release at 10:00 a.m. So a lot of news releases ahead of us this morning. However, economic data releases seem less important than the mentioned virus scare recently.

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Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The S&P 500 Enters Correction, Coronavirus Fear Grows, Consumer Data Still Solid

The U.S. Market Is Down In Early Trading

The U.S. index futures are down hard again in Friday trading. This is the 7th day of decline and puts the major indices deep in correction territory. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all down more than 10% in that time.  The Dow Jones Industrial Average fell nearly 1200 points in Thursday action, its biggest one-day drop on record. This has been the worst week for equities since 2008 and the pain is not yet over.

The sell-off was sparked by the coronavirus and the market’s realization it will have a profound impact on global GDP this year. Yesterday’s warning from Goldman Sachs, that EPS growth would fall to 0% or lower, is the prime example. In virus news, the spread of the virus is not contained. New Zealand and Nigeria have reported their first cases while China and South Korean totals continue to rise. South Korea is now the center of the spread with 500 new cases. China’s epidemic appears to be slowing with only 327 new cases.

The virus is expected to gain a foothold in the U.S. and may already have done so. California reported its first case of community-based transmission and now has roughly 8,500 hundred people under observation.

 Stocks On The Move

Caterpillar is the worst-performing stock in the Dow. The bellwether of global economic activity was down as much as 3.0% in early pre-market trading but cut the losses to only -2.0% by the open of the session. Shares of Apple were also down about 3.0% in early trading while Chevron and Cisco both posted losses near 2.0%. Hard-hit S&P 500 stocks include Norweigan Cruise Lines and American Airlines are moving lower in today’s session and down more than 20% since the broad-market sell-off began.

Paypal is the latest to issue a warning about the virus. The global payments company says revenue will be impacted by the virus because the cross-border activity is slowing. Paypal says revenue will come in at the lower end of the previously stated range and below consensus.

Consumer Data Remains Strong

The day’s economic calendar is topped by the Personal Income and Spending data. The report shows income rose by a larger than expected 0.6% while spending increased only 0.2%. Analysts had been expecting income to rise by about 0.3% and spending the same. Looking in the rearview mirror, the previous month’s income was revised down by 0.1% while spending was revised higher. On the inflation front, PCE prices rose 0.1% last month and are up 1.7% YOY. At the core level, consumer inflation is up 1.6% from last year.

Price of Gold Fundamental Daily Forecast – Watch for Buyers as Market Enters Value Area

Gold prices are down over 1% on Friday as investors continued to book profits after a recent run-up in prices. The market has now give back more than half of its gains from the rally that began on February 5. Nonetheless, the precious metal is set to finish with a third consecutive monthly gain although it is likely to end the week with a loss.

At 13:25 GMT, April Comex gold is trading $1623.80, down $18.70 or -1.14%.

The weakness in gold this week has come as a surprise to some. One would think that with the global equity markets plunging over 10% in just a matter of days, gold prices would’ve soared. But that hasn’t been the case.

Gold is probably under pressure this week for a number of reasons. Firstly, it may be too costly or overpriced. Secondly, traders may have fully priced in the sooner-than-expected rate cuts from the Fed. Thirdly, some of the bigger hedge funds may be booking profits to offset some of their losses or to meet margin calls in other markets. Finally, investors may have determined that buying U.S. Treasurys for safe-haven protection is a better play due to liquidity issues in gold.

Daily Forecast

We said earlier in the week that the longer-term fundamentals for gold are bullish and that investors may not buying again when the market hits a value zone. Not everyone has the money to chase a market higher.

Gold is currently trading inside a value zone defined as $1628.10 to $1604.80. Watch the price action and read the order flow on a test of this zone to determine if buying is taking place. Ideally, we’d like to see a closing price reversal bottom, but that moves seems unlikely today unless there is a dramatic turnaround.

Gold may have to spend a few days inside the value zone, building a support base, before prices move higher.

Sweden Ends Its Experiment with Negative Interest Rates. Should Gold Be Worried?

In December, the Sveriges Riksbank, the world’s oldest central bank, has raised the main interest rate from -0.25 percent back to zero, ending its experiment with the negative interest rate policy, as the chart below shows.

Chart 1: Riksbank’s repo rate from January 2010 to January 2020.

This is a huge change. As a reminder, Riksbank was a pioneer of negative interest rates. As early as in 2009, it moved the overnight deposit rate below zero. Then, in 2015, the Swedish central bank cut its main interest rate, the repo rate, to -0.10, worried about the repercussions of the sovereign debt crisis in the euro zone. In 2016, Riksbank was forced to go further, setting the interest rates as low as -0.50 percent, to prevent a Japanese-style deflationary spiral in Sweden.

And now, after all these years, Riksbank abandons the negative interest rates, again being in the avant-garde of central banking, as policy interest rates are still negative in the euro zone, Japan, Denmark, Switzerland and Hungary.

Why Riksbank has ended the NIRP? One explanation is that Sweden’s inflation rate is close to the target, so the monetary tightening was necessary. In other words, the NIRP did its job and was not needed any longer. As we read in the Riksbank’s press release,

Inflation has been close to the Riksbank’s target of 2 per cent since the start of 2017, and the Riksbank assesses that conditions are good for inflation to remain close to the target going forward.

It sounds plausible, but the truth is that inflation has been hovering around the target for a few last years, as the chart below shows. So why did the Riksbank decide to hike interest rates only now – and in face of weaker economic activity?

Chart 2: Sweden’s annual CPI rate from January 2015 to December 2019.

The answer is that Sweden’s central bank has finally acknowledged what we were writing from the very beginning of the NIRP, i.e., that the costs of this policy outweigh the benefits, euphemistically speaking. Indeed, Riksbank admitted itself that concerns about the side-effects of the negative interest rates on the economy contributed to its decision. As we read in the minutes from the December meeting,

a long period of negative interest rates may have negative side effects on the economy, as the draft Monetary Policy Report commendably describes. This is a parameter that we should take into account.

In particular, the Sweden’s central bank is worried about the health of the housing market and households’ level of debt. As Governor Stefan Ingves noted,

Let me add, as I often do, that the long-term development of the Swedish housing market entails a risk to the Swedish economy in both the short and long term. There are a number of structural problems in the Swedish housing market. This creates both imbalances and risks, in the form of high indebtedness among households, and economic inefficiency, in that it will be more difficult for people to move in connection with finding a new job.

Indeed, the real estate price index has increased 33 percent since 2015 (from 180 points to 240) and doubled since the Great Recession, while the household debt-to-GDP ratio has risen from 65 percent in 2008 and 82 percent in 2015 to 88 percent in 2019. Please note that the whole Swedish private-sector debt has climbed to 285.7 percent of GDP, one of the highest rates in the OECD.

What does it all mean for the gold market? Well, the Riksbank’s recent hike confirms that the ultra loose monetary policy in general and the negative interest rates in particular do not support the real economy, but they rather zombify it instead. They also boost asset prices and debt, increasing the risk of a financial crisis.

Sweden is relatively small economy, but the ECB or the Bank of Japan are not likely to follow suit and also end their romance with the negative interest rates anytime soon. The Fed claims that it does not want to go below zero, but Trump supports this policy, so who knows…

So, the fact that Riksbank ended its NIRP should not upset the gold bulls. They still can count on other, more systematically important, central banks. One day, the unexpected negative shock arrives and it will expose the fragility of the current financial situation, so carefully cultivated under the strange world of negative interest rates. Investors would then also rediscover the safe-haven allure of gold.

If you enjoyed the above analysis and would you like to know more about the fundamentals of the gold market, we invite you to read the February Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron, PhD
Sunshine Profits – Effective Investments Through Diligence and Care

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Trading Alerts.

 

US Stock Market Overview – Stocks Tumble As Fears Push VIX to 2-year Highs

US stocks traded under pressure for a 7th consecutive trading session. The S&P 500 index officially hit correction territory. Yields moved lower, volatility continued to rise, as investors struggled to determine where the market will bottom.

While many analysts are talking about whether the Fed will lower rates, the Fed is trying to focus on credit and slower growth. A correction in stock prices is normal, but if prices move quickly into a bear-market territory (the S&P 500 index down 20% from its highs), the Fed will likely be quick to make a move. The data the market is seeing for February is not that bad. The issue is that the stock market is forward-looking and the slowness will probably not occur until April. The market is currently pricing in 3-reductions in Fed fund rates in 2020, with a better tan 50% chance in April.

The VIX volatility index continued to surge on Thursday, rising above 36% at the highs of the session. While the VIX hit a high of 50% in February of 2018, this is likely to be the highest weekly close on the VIX in the past 3-years. Housing data continued to impress as US treasury yields decline. The 10-year Treasury yield hit a low of 1.29 on Thursday, which weighed on mortgage yields making home buying more attractive. Gold prices continue to rise as Treasury yields held south, somewhat buoying metal mining companies.

The Housing Market is Surge

Declining treasury yields are weighing on mortgage rates, providing lower costs to purchase homes. The National Association of Realtors, reported that Pending Home sales surged 5.2% on January, up 5.7% year over year. Pending sales measure signed contracts, not closings.

Gold Price Prediction – Prices Consolidate as US Yields Stabilize

Gold prices are consolidating and despite the selloff in riskier assets, the rush to gold as a safe haven was minor. Gold has been consolidation and continues to range trade waiting for US yields to take another leg lower.  Yields dropped to 1.235% which is the lowest in more than 100-years but rebounded and above the 1.32%, which weighed on gold prices. The flight to bonds should continue following data that will be released at the beginning of March. Housing data continued to impress as the drop in the mortgage rate continued to attract home buyers.

Technical Analysis

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Technical Analysis

Gold prices moved higher early as riskier assets came under pressure. As the day progressed, prices retraced and traded near Wednesday close. The price action still looks like a bull flag pattern. This is a pause that refreshes higher. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,621. Short term momentum has turned negative as the fast stochastic recently generated a crossover sell signal, and continue to accelerate lower as a steady clip. The current reading on the fast stochastic is 61, declining from overbought territory which also reflects decelerating positive momentum. The MACD histogram is printing in the black with a declining trajectory which points to consolidation.

The Housing Market is Surge

Declining Treasury yields are weighing on mortgage rates, providing lower costs to purchase homes. The National Association of Realtors reported that Pending Home sales surged 5.2% in January, up 5.7% year over year. Pending sales measure signed contracts, not closings.

Gold Price Forecast – Gold Markets Continue to Attract Inflows

Gold markets rallied a bit during the trading session on Thursday as we continue to see a lot of selling pressure out there. Quite frankly, the market will continue to struggle with the idea of safety, and of course gold is one of the first places people look. With the US dollar kitten hit yet again, that also puts more upward pressure on precious metals in general. That being said though, I do think that even if the US dollar started to strengthen, it could very well be a safety thing, so therefore the gold market may completely ignore that as it had a couple of weeks ago.

Gold Price Predictions Video 28.02.20

Looking at this chart, I think the most obvious target is $1700 above, but quite frankly I think we break above there given enough time. Once we do, then the market is likely to continue going even further, perhaps reaching towards the $1750 level. Pullbacks at this point should continue to find plenty of value, especially with the $1600 level being an obvious area where we had previously seen resistance. The idea of “market memory” does make sense in this area, and it’s likely that the technical trading community will be paying close attention. I have no interest in shorting, and now it’s just a matter of finding some type of supportive area or little bit of a bounce in order to get involved. Value hunting is the best way going forward, as it allows you to buy an asset “on sale.” That’s cannot be any different here.

Price of Gold Fundamental Daily Forecast – Fed Rate Cut May Be Fully Priced In for April

Gold prices are trading higher on Thursday after a late pick-up in demand the previous session following the test of a one-week low. After a surge to its highest level in seven years on Monday, prices have drifted mostly sideways to lower. The move isn’t reflecting a change in the bullish fundamentals, but rather the thought that prices are relatively too expensive.

At 15:44 GMT, April Comex gold is trading $1651.10, up $8.00 or +0.50%.

There is no doubt that gold has been a tricky market to analyze and trade this week because it only makes sense that prices should be moving sharply higher in response to a steep plunge in U.S. equity markets and a drop in 10-year U.S. Treasury yields to a record low on Thursday. The price action suggests that gold buyers may have been well ahead of the rest of the markets when it made its recent surge while U.S. stocks were hitting record highs.

Lower Interest Rates Reduce Opportunity Cost of Holding Non-Yielding Gold

Growing expectations that central banks will certainly need to take action if coronavirus continues to spread, particularly outside China, is helping to prop up prices.

Investors have increased bets for a rate cut by the U.S. Federal Reserve to ease the impact on the economy, according to an analysis of Fed funds futures compiled by the CME Group. Money markets have also priced in cuts by the European Central Bank and Bank of England.

“Markets are already pricing in some decent cuts to rates across the globe so that’s the clear driver of (gold) prices and demand,” ANZ’s Hynes said.

Money markets are now fully pricing in one 25 basis point cut in the Fed’s rate by April and three by March 2021. Expectations for a European Central Bank (ECB) rate cut have also risen; money markets now price in more than 80% chance of a 10 basis point rate cut in July.

Central Banks Still Reluctant to Call for Rate Cuts

Not all central banks are in a hurry to cut rates, however, with U.S. officials saying it’s too early to consider a rate cut, and policymakers in Australia and New Zealand feeling a rate cut from current levels may not have the same impact on the economy as a rate cut from higher levels.

Furthermore, in a surprise move, the Bank of Korea kept its benchmark policy rate unchanged. Central bank policymakers surprised the financial markets by holding its benchmark interest rate at 1.25% when analysts polled by Reuters were expecting a rate cut. That was despite a recent spike in the number of coronavirus cases in the country threatening its economy.

Aberdeen Standard Investments’ Leong Lin Jing described the Bank of Korea’s interest rate decision as “a little bit curious.”

“Bank of Korea has had a habit of being a little bit behind the curve … when acknowledging that growth is slowing down,” Leong said.

Daily Forecast

The gold market chart pattern clearly indicates a U.S. rate cut has been priced into the market. Now traders are playing the waiting game as they wait for U.S. policymakers to come aboard. Prices could sit in a range until economic data that the Fed can’t ignore clearly shows the need for a rate cut sooner than expected.

You see the drop in Treasury yields means investors want a rate cut, the rise in gold indicates traders expect a rate cut in April, but the Fed doesn’t always give the markets what they want.

Virus Fears Scuttle Market, EPS Growth In Question, Data Still Holding Up

Equities Fall In Fourth Day Of Viral Rout

The U.S. futures market is indicating another deep decline on Thursday. The move, sparked by a growing fear of the coronavirus, shaved another -1.0% and more off of the major indices. Today’s news includes word of the first community-spread case of coronavirus in the U.S. Health officials in California report the first case in which there is no known trail of contagion. The news raises the stakes in terms of economic impact, if the U.S. shuts down like China and other countries global GDP could contract sharply in 2020.

Elsewhere in the world, China continues to report new cases despite signs its containment efforts are starting to pay off. In South Korea, the second hardest nation, the number of new cases spiked to set a new daily record. The disease is not yet contained in that country. Officials in Japan are taking precautionary efforts and have closed all schools, the number of cases is growing in the EU as well.

Stocks On The Move

Tech is among the days hardest hit. The sector has above-average exposure to China and international markets making it particularly vulnerable to the disease. Apple and Intel are among the days leaders but are not the biggest losers by far. Apple and Intell are both down about -1.5% while chipmakers NVDA and AMD have shed -2.5% and -3.9% respectively.

Microsoft and Goldman Sachs are the latest to issue warnings about the viral impact. Microsoft says it will not meet its Q1 revenue targets because the supply chain is re-ramping slower than expected. Goldman Sachs analysts issued a warning that EPS growth for the entire S&P 500 could come in well below expectations for the year, as low as 0.0% but I think their estimate is generous.

Best Buy issued a Q4 earnings report this morning. The company reports better than expected revenue and earnings that were driven by an increase in comp-store sales. Shares were up sharply following the news but have since given up their gains. Virgin Galactic got a major catalyst from analysts this morning. A double-dose of downgrades from Morgan Stanley and Credit Suisse have shares down more than -13.0%.

The Data Is Good, No Indication Of Weakness

The number of new claims for unemployment insurance climbed 8,000 over the last week but remains low and trending near historic lows. The continuing claims and total claims figures, both indicators of conditions within the broad labor market, were relatively flat over the past week. New orders for durable goods fell -0.20% over the past month. The figure is better than expected and accompanied by a double-digit increase in core capital goods orders. On the GDP front, the final read for 4th quarter GDP is 2.1% and unchanged from the previous estimate.

Gold Daily News: Thursday, February 27

The daily trading range reached over 30 dollars and it shows how high short-term volatility is. Investors were buying the safe-haven asset amid corona virus outbreak, economic slowdown fears recently. But gold has retraced a big chunk of that rally after bouncing off $1,700 mark.

Gold is gaining 0.7% this morning, as corona virus fears continue to dominate financial markets. What about the other precious metals? Silver lost 1.52% on Wednesday, as it got back to its Tuesday’s daily low. And the price fell below $18 mark. Silver is currently 0.9% higher. Platinum lost 1.88% on Tuesday, and right now it is trading 0.2% higher.

The metal bounced off $1,000 mark and it is getting closer to $900. Palladium was the only gainer again on Wednesday, as it advanced by 0.72%. However, it is retracing some of the short-term uptrend today, as it trades 1.2% lower.

The financial markets went risk-off since last Friday, as corona virus fears came back again. The economic data releases seem less important than the mentioned virus scare recently. Yesterday’s New Home Sales number was better than expected but it didn’t improve investors’ sentiment that much. Today we will have the Durable Goods Orders along with Preliminary GDP number release at 8:30 a.m. Then at 10:00 the Pending Home Sales data will be released. Take a look at our Monday’s Market News Report to find out more!

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Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care


Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

WHO, The Markets New Grim Reaper

Markets

After an up and down session with trader vacillating on the economic impact, the coronavirus will have on global growth, S&P500 was more or less flat heading into the close, having spent most of the session in slightly positive territory. Most European bourses saw very modest gains, though Asia was weaker. US fixed income rallied further, however, US10Y yields down a further 3bps to 1.33%. Oil down another 2.4%.

But for risk concerns, the bearer of the truth was WHO reporting that 427 new cases of the virus were confirmed Tuesday outside China, compared with 411 in mainland China: the first time that new case numbers outside China were higher than those from within. Of course, the spread beyond China borders has been at the core of the market’s worries since the weekend news flow pointed to a potential supper spreader around the globe and saw risk U-turn lower.

Previous crisis playbooks have all revolved around buying the dip in equities, so I wonder just how much further the fire sale will go before the market at least starts to scale in again. We saw an attempt at a bounce in the New York session before the markets new Grim Reaper, the WHO, raised its ugly head again.

But based on last night’s price action, it does appear that any bounce in stocks is likely to be short-lived. And eventually, the markets could fall deeper as investors start to think what’s the point of trying to pick the bottom in the short term.

Looking further down the line in 2020, the market continues to price in more significant haircuts to large parts of the global economy. At the same time, the idea of a v-shaped recovery seems to be the new castle in the sky. Admittedly things can pivot quickly, but if you believed in the narrative, that easy monetary policy was mainly fuelling the risk rally. Then arguably, you are going to want to see definitive signs of a Fed pivot, primarily as the fundamentals are pointing the other way before feeling confident about buying equities. But on that front, the Fed messaging continues to signal “still too soon.”

On the G-20 coordinated stimulus front and for those looking for shock and awe fiscal delivery from Europe was always likely to be disappointed. News about Germany intending to pause its debt brake sparked a recovery in stocks and a sell-off in Bunds, but it was short-lived. Still, ultimately, the cumulative effect of similarly measured responses around the world might be enough to grease the wheels of the global economy.

Oil Markets 

Traders remain hyper skittish, and oil rallies short-lived as self first ask questions later will be the theme if there is still even the slightest concern over the virus outbreak becoming a pandemic. There has been another big hit to oil on renewed super spreader coronavirus fears.

And as expected, the EIA inventory data which under normal conditions would have been bullish for oil price fell through the cracks as uncertainty over coronavirus will take its toll on oil demand sentiment until its impact can be adequately quantified.

Next week’s OPEC+ meeting should be a positive catalyst, but the fear here is that the outcome might be consigned to oblivion with the market singular focused on virus spread, which has unceremoniously shown up on the doorsteps of the US market. Still, OPEC + has enough weight, and with a hefty production cut at a minimum, it should offer a backstop, and with a problem G-20 concerted stimulus effort surely the bottom can’t be too far from here. In addition, with WTI below $ 48 it could also trigger the self-correcting US supply mechanism as more shale wells go offline due to breakeven concerns.

The Straw that could break the Oil market back?

The biggest concern and the straw that could possibly break the oil markets back is the susceptibility of the US market to this insidious virus, which from a risk perspective needs to rank beyond all other. If the virus spread rapidly in the US, you can’t unscramble that egg.

The most glaring problem is that the US has only tested 426 people, while South Korea has tested 35,000. The US guidelines were only to check those who displayed respiratory symptoms and had recently traveled to China or had close contact with an infected person. The problem is that coronavirus is asymptomatic — it is contagious before the symptoms show.

China had come in for some criticism over the handling of the outbreak. However, as the virus spreads global, those “harsh” measures appear to have been the right thing to do and arguably its Europe and US efforts that could be too complacent and porous. And not surprisingly, any excuse to sell still feels like the sentiment in the market right now.

Gold Markets

It’s too early to cap gold prices as we are not in business as usual market conditions. But of course, there is no denying gold’s safe-haven credentials have been questioned in light of a gold decline as Treasury yields also fell precipitously this week, which should have been extremely positive for gold.

But since we’re only into day three of demand depletion and given the position build of late, this week’s washout still fits into the “healthy correction” category although we might revise that view on a break of $1600.

However, as profit-taking and selling to cover margin calls in the equity markets is decreasing, so the chances of gold rebounding increase propelled by ongoing COVID-19 concerns amid volatile financial conditions.

Beyond the constant stream of buying the dip analysts banter and for investors that have sizable gold positions. there are some concerns

Government spending commitments to contain the virus and e might push bond yields higher and weigh on gold appeal, especially from the fiscal side of the equation. While the Fed advocating for patience doesn’t provide a significant impulse to push gold through $1700. But with yields so low suggesting gold downside should be limited a delayed policy market response could funnel more buying of gold as the longer the Fed sits on their hand, the worse stock market conditions could get

Currency Markets 

The US Dollar

The US dollar has lost its safe-haven status with the coronavirus arriving on the US doorstep. With Fed rate cut probabilities on the rise US bond yields sliding ,fortunately for the global risk markets, the US dollar has started to weaken as reverse Yankee mania sets in.

Asia FX

Outside of the KRW and THB, which remains high beta to further jumps on coronavirus cases withing ASEAN proxies. Asia FX has remained fairly rangebound despite all the coronavirus upheaval around the globe. To no small degree, much of the sell-off Asia FX were priced into the curve ahead of the global equity market meltdown, and at the same time, the Yuan has remained tethered to the PBoC policy anchor by maintaining a stable policy fixing.

The Ringgit

Foreign investors sidestepped Fitch warning (seldom have lasting legs) and have resumed their demand for Malaysia bonds as the BNM rate cut expectations get to move forward. Its a small but positive move in these politically charged times, which continues to weigh on the Ringgit despite the succession scrim looking a bit less messy than at the start of the week. But when it comes to Malaysia politics, all bets are off.

Gold Price Prediction – Prices Rise Forming Bull Flag Pattern

Gold prices rebounded on Wednesday as riskier assets and yields continued to whipsaw. The US 10-year yield hit a fresh all-time low at 1.294 before rebounding and closing at 1.33%. The markets remain skittish which buoyed the yellow metal as a new case of coronavirus was discovered in the US. President Trump is expected to hold a press conference this evening to describe to the American people how the US government will handle the coronavirus. US single-family home sales surged to a fresh 12-year high as mortgage rates continued to decline following treasury yields lower. Gold implied volatility, represented by the GVZ index calculated by the Chicago Board of Options Exchange, surged declined 7% after rallying 5% on Tuesday climbing 9% Monday.

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Technical Analysis

 

Gold prices moved higher and are forming a bull flag continuation pattern. This is a pause that refreshes higher. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,615. Short term momentum has turned negative as the fast stochastic recently generated a crossover sell signal. The current reading on the fast stochastic is 67, declining from overbought territory which reflects decelerating positive momentum. The MACD histogram is printing in the black with a declining trajectory which points to lower prices.

Home Sales Surge

The commerce department reported that US single-family homes raced to a 12-year high in January. New home sales jumped 7.9% to an annual rate of 764,000 units last month, the highest level since July 2007. December’s sales pace was revised up to 708,000 units from the previously reported 694,000 units. Expectations had been for new home sales, which account for about 12.3% of housing market sales, would advance 3.5% to a pace of 710,000 units in January.

Gold Price Forecast – Gold Markets Stabilize

Gold markets have gapped lower to kick off the Wednesday session, but as you can see, we have gone back and forth since then, and it looks like gold is in fact trying to stabilize a bit. Ultimately, gold is a safe haven commodity, but the US dollar strengthening in the way it has is of course working against the value of gold in the short term. Longer-term, they both will continue to go higher in my estimation, as the coronavirus and a concern about global growth continues to overhang any type of risk appetite.

Gold Price Predictions Video 27.02.20

To the downside, I see the $1600 level has been rather supportive, and I also recognize that the 50 day EMA sitting just below there should continue to offer a lot of support as well. At this point, buying the dips continues to be the best way going forward, and therefore that is exactly how I will trade as it has served me so well. It’s not that we break down below the $1550 level that I would be concerned about gold, and right now that doesn’t look very likely to happen. Having said that, if it does do that than the $1500 level will certainly be tested right along with the 200 day EMA. Longer-term, I think we are trying to build up enough pressure to break above the $1700 level but it’s going to take a lot of effort to make that happen. Buying the dips has worked, and it should continue to do so from everything that I’ve seen over the last several months.