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When Will Gold Go Up?

Gold broke US$2,000 in the summer of 2020, but soon fell back a few pegs. Many market watchers are now wondering, "When will gold go up?"
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Of all the metals on Earth, gold shines the brightest when it comes to holding its value and being a vehicle for building and preserving wealth.

In fact, the gold price has risen by as much as 700 percent in the last 20 twenty years. Despite that impressive increase, many investors are still wondering, “When will gold go up?”

The precious metal is a safe haven asset that performs well in tumultuous times, and there have been plenty of global crisis events in the past few years — most recently the socioeconomic fallout from the COVID-19 pandemic.

 

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There are plenty of gold bulls calling for the price of the yellow metal to double, triple and even quadruple the current figure. Nevertheless, answering the question, “When will gold go up?” is a bit of a guessing game, even for the most veteran gold market analysts.

That said, there are certain time-tested indicators for when gold will go up that market participants can track in order to make a more educated guess about the precious metal’s future price action.

When will gold go up?: Gold’s previous price performance

If you want to know when gold will go up, the yellow metal’s past performance is a good place to start. Let’s start with a look at gold’s price action during the coronavirus pandemic.

The gold price started off 2020 trading at US$1,527 per ounce, and by May the yellow metal was sitting above US$1,700, a price level not seen since late 2012. Later that summer, as the economic fallout and uncertainty surrounding the pandemic really began to sink in, the gold price broke the US$2,000 level on August 7 to reach an all-time record high of US$2,067.15.

However, the market couldn’t sustain that level for long, and gold had dipped below US$1,900 by the start of the fourth quarter. Pfizer (NYSE:PFE) and BioNTech’s (NASDAQ:BNTX) vaccine breakthrough announcement in November led to a 5 percent price shave, dropping gold once again below the US$1,800 level before it rebounded to just below US$1,900 by the close of the year.

All in all, gold closed out 2020 up about 21 percent for the year. According to FocusEcomics economist Steven Burke, its price growth in 2020 was strongly linked to the global impact of COVID-19. “The pandemic invoked unprecedented economic uncertainty, which led to a surge in safe-haven demand and, in turn, boosted gold prices,” Burke told the Investing News Network (INN).

Burke also pointed out that a return to certainty begets a stronger “appetite for risk” on the part of investors, which “bode(s) poorly for safe haven demand and gold prices.”

In fact, in the first quarter of 2021, the gold price fell by 8.1 percent to hit US$1,744 by the end of March. The main drivers of gold’s poor performance were high US 10 year Treasury yields on top of a strong American dollar. These factors contributed to a higher risk appetite among investors, which was evident by the increased demand for bitcoin.

Heading into late May 2021, gold broke through the US$1,900 level, with some analysts calling for a repeat of the summer of 2020 with another record-breaking gold price on the horizon. Gold’s lift in the second quarter has been partially attributed to comments from the US Federal Reserve that have market watchers believing interest rate hikes are not on the table — for now.

Investors interested in understanding when the gold price will go up should keep one eye on the Fed’s interest rate plans. Rate hikes are generally negative for gold because when rates are higher investment products that accrue interest are more profitable than the precious metal.

In July 2019, the Fed began cutting interest rates for the first time since 2008, dropping interest rates by a quarter point to a range of 2 to 2.25 percent. Since then, the Fed has slashed interest rates to 0 to 0.25 percent. As of its April 2021 meeting, the central bank had no plans to hike interest rates — in fact, some economists at the central bank are arguing for sub-zero interest rates.

 

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When will gold go up?: Gold supply and gold demand

Whether the gold price is sliding down or heading up, market participants are always on the lookout for the next catalyst that will drive the price higher.

Investors should continue to watch for destabilizing geopolitical events, the ongoing socioeconomic impact of the COVID-19 pandemic, future Fed rate changes and ongoing trade tensions between China and other G7 countries, including the US, Canada and Australia.

But what about gold supply or gold demand? The World Gold Council’s (WGC) 2020 report indicates that last year both gold mine production and total gold supply decline by 4 percent compared to 2019. The WGC attributes that slide to operational disruptions caused by COVID-19 lockdowns.

Gold bars and gold coins saw an increase of 3 percent in annual demand, while gold exchange-traded funds reached record year-end holdings of 3,751.5 tonnes, up 120 percent year-over-year. Overall in 2020, investment demand for gold accounted for more than 46 percent of total demand.

However, overall consumer demand for gold in 2020 was negatively impacted by the coronavirus pandemic, resulting in a 14 percent decline that led to total annual demand dipping below 4,000 tonnes for the first time since 2009.

Much of this was attributed to demand for gold jewelry falling by 34 percent year-over-year to a record low of 1,411.6 tonnes. China and India are the two largest markets for gold jewelry, and both countries’ citizens have seen their purchasing power decimated by the coronavirus pandemic. Traditionally, gold jewelry is responsible for 50 percent of global gold demand. However, in 2020 the jewelry sector only accounted for about a third of total gold demand.

On the industrial side, gold is used in electronics technology and is benefiting from the rise of nanotechnology. This demand segment was also impacted by COVID-19 lockdowns, with demand for gold declining by 7 percent in 2020 to 301.9 tonnes.

Over the past decade, central banks have become net buyers of physical gold. “Although 2020 marked the 11th consecutive year of net purchasing by central banks, it was the lowest annual total for central bank purchasing since that trend began in 2010,” notes the WGC. Central bank buying declined by 59 percent for the year, with most of that drop coming in the second half of the period.

Much like gold jewelry and industrial demand, central bank gold demand in 2020 was also negatively impacted by the coronavirus pandemic. Some central banks moved to liquify their physical gold holdings to better support their economies through the crisis.

The WGC expects gold demand from these segments to recover in 2021 and beyond as the world’s economies improve. In its Q1 2021 gold report, the council revealed that consumer gold demand was on the rise, with jewelry demand up 52 percent over the same quarter in 2020. Gold jewelry spending reached US$27.5 billion, which the WGC notes was the highest value for a first quarter since 2013. Gold demand from the technology sector grew by 11 percent year-over-year.

 

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When will gold go up?: Gold in the future

Gold broke through the US$1,900 level in Q2 2021, leading investors to dream of another Summer of Love for the precious metal. Will the gold price post a new record-breaking high in 2021? Many analysts think there’s enough support for gold prices to once again rise above US$2,000.

Byron King, who writes the Whiskey & Gunpowder newsletter at St. Paul Research, which is part of Agora Financial, told INN that he sees continued weakness in the US dollar as very supportive for gold. King thinks the gold price has the potential to repeat last summer’s performance. “Last summer we saw gold over US$2,000 an ounce. I expect we’re going to see the same thing again this summer,” he said.

Watch the full interview with King above.

Ed Moy, chief market strategist at Valaurum and former director of the US Mint, told INN in early May that he expects gold will trade between US$2,000 and US$2,100 by the end of 2021. Moy said that the demand for physical gold as an investment has led to higher premiums, with major gold retailers reporting sales of gold ounces already in that price range.

“So even though the spot price is well below that, to me the real price of gold is what the market is willing to pay for it — and they’re willing to pay up to US$2,100,” he noted. Moy also said that risk of inflation and uncertainty over when the economy will recover are both positive factors for a higher gold price.

Watch the full interview with Moy above.

Gareth Soloway, chief market strategist at InTheMoneyStocks.com, is even more bullish on gold. In a May interview with INN, Soloway pointed to US$2,860 as a price target for gold in the next year or two given the similarities between the supportive fundamentals right now and the 2007 to 2008 market.

“You have gold replicating to basically the tee exactly what it did the last time it broke above its high. It pushed through, then it pulled back … and then it just started to zoom higher — and that’s what I think will actually happen to gold,” he said.

Watch the full interview with Soloway above.

If the gold price continues to rise this year, breaking a new record high is a good possibility. And INN’s Twitter followers agree — at the end of May, we asked whether gold will reach US$2,000 again this summer. More than 87 percent responded in the affirmative.

Now it’s your turn. When will gold go up and break the US$2,000 barrier? Let us know in the comments.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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August Monthly

Fear that the spread of the Delta mutation of the covid would disrupt the global economy spurred the unwinding of risk-on positions. Interest rates fell, and the traditional funding currencies:  the US dollar, Swiss franc, and Japanese yen, strengthened..

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Fear that the spread of the Delta mutation of the covid would disrupt the global economy spurred the unwinding of risk-on positions. Interest rates fell, and the traditional funding currencies:  the US dollar, Swiss franc, and Japanese yen, strengthened most in July. While major US indices set new record highs, as did Europe's Dow Jones Stoxx 600, the MSCI Emerging Markets Equity Index fell 7%.

The preliminary July PMI reports were below expectations in the US, UK, and France.  Japan's composite PMI has been contracting since February 2020.  There has been some re-introduction of social restrictions in parts of Europe.  The UK's "Freedom Day" (July 19), when mask requirements and social restrictions were supposed to be dropped, turned into a caricature as the Prime Minister and Health Minister were in self-quarantine due to exposure, and the number of cases reached the highest level in 5-6 months. 

Given the large number of people in the world that remain unvaccinated, the challenge is that the virus will continue to mutate.  Moreover, even in high-income countries, where vaccines are readily available, and stockpiles exist,  a  substantial minority refuse to be inoculated. This is encouraging the use of more forceful incentives that deny the non-vaccinated access to some social activity in parts of the US and Europe.  In the US, the vaccines have been approved for emergency use only, and broader approval by the FDA could help ease some of the vaccine hesitancy.  Yet, rushing the process would be self-defeating.  An announcement still seems to be at least a couple of months away.  

In some countries, the surge in the virus even where not leading to hospitalizations and fatalities, maybe tempering activity and postponing more "normalization" like returning to offices.   The increase in the contagion has also prompted several companies to postpone plans to have employees return to offices. In other countries, like Australia, the virus and social restrictions are having a more dramatic economic impact.  Its preliminary July PMI crashed to 45.2 from 56.7, the lowest since last May.  Although many countries in East Asia seemed to do well with the initial wave, they have been hard hit by the new mutations.  For some, the recovery already had appeared to be in advanced stages.  

Floods in China, India, Germany, and Belgium add to the economic angst.    A freeze in Brazil sent coffee prices percolating higher.  Wildfires in Canada stopped the downside correction in lumber prices.  While rebuilding is stimulative, in the first instance, the natural disasters could be inflationary as transportation and distribution networks are impacted. 

The market reacted by pushing down nominal and real interest rates.  In late July, the US 10-year inflation-protected note yield (real rate) fell to a record low near minus 1.13%  Ten-year benchmark yields in the US, Europe, Australia, and China were at 4-5 month lows.  Expectations for rate hikes by high-income countries eased, and Beijing surprised investors by cutting reserve requirements by 50 bp (freed up ~$150 bln of liquidity).   

Still, other central banks, like Russia who hiked rates by 100 bp in late July, are pushing forward.  In Latin America, Brazil, Mexico, and Chile are likely candidates for rate hikes in August.  The market anticipates additional rates hikes from the Czech Republic and Hungary.  On the other hand, Turkey's central bank meets under much political pressure to cut rates.  Inflation is not cooperating, and it reached 17.5% in June,  a new two-year high.  Yet, the Turkish lira downside momentum eased, and this alone, in the face of a stronger dollar, meant it was the best performing emerging market currency last month, up about 3.0%.  Its 12% loss year-to-date still makes it the second-worst performing emerging market currency so far this year, behind the Argentine peso's nearly 13% decline.  

The Federal Reserve does not meet in August, but the Jackson Hole symposium (August 26-28) may offer a window into official thinking about the pace and composition of its bond purchases.  Under that scenario, a more formal statement would be provided at the end of the September FOMC meeting (September 21-22). Chair Powell has pledged to give ample notice about its plans to taper.  This means that the initial timing of the beginning of the tapering may be vague by necessity.  Many expect the Fed to begin reducing its bond purchases either later this year or early next year.  

The debt ceiling debate may add another wrinkle.  The debt ceiling waiver expired at the end of July.  There are several different ways that Treasury can buy time.  There are many moving parts, and it is hard to know exactly when Secretary Yellen would run out of maneuvers, but she probably has around two months.  In the past, the uncertainty was reflected in some T-bill sales.  Recall it was the debate over the debt ceiling (the government has already made the commitments or spent the funds and now has to pay for them) that prompted S&P to remove its AAA rating for the US in 2011. 

Meanwhile, Beijing is waging an internal battle to retain control in the technology and payments space.  It has also stepped up its antitrust actions and moved to make it more difficult for internet companies to have IPOs abroad. At the same time, the US threatens to de-list foreign (Chinese) companies if they refuse to allow US regulators to review their financial audits.  This is more than quitting before getting fired, though at the end of July the US announced that concerns over risk disclosures have prompt it to freeze applications for Chinese IPOs and the sale of other securities.  Its efforts to turn the private schools into non-for-profits are driven by Beijing's domestic considerations, but foreign investors--hedge funds, a couple US state pension funds, and provincial pensions in Canada appear to have been collateral damage.  Even the Monetary Authority of Singapore had exposure.

The jump in Chinese yields and the drop in equities that pushed the CSI 300 (an index of large companies listed on the Shanghai and Shenzhen exchanges) 21% below the February peak prompted some remedial measures by officials.  They succeeded in steadying the bonds and stock markets, and the yuan recovered from three-month lows as July wound down. However, both the disruption and the salve, the selling of industrial metals, coal, and oil from its strategic reserves, demonstrate the activist state that gives foreign investors reservations about increasing allocations to China.  To draw foreign capital, officials may be tempted to engineer or facility a strong recovery in shares and the yuan.  

Beijing is also meeting resistance from abroad.  Its aggressiveness in the region, including the aerial harassment of Taiwan and rejection of the Arbitration Tribunal at the Hague regarding the United Nations Convention on the Law of the Sea (that pushed back against Chinese claims in the South and East China Seas). Over the past few weeks, the situation has escalated. The UK announced it will station two naval vessels in the area.  Japan has promised to defend Taiwan should it be attacked by China.  The US has not been that unequivocal.   The EU has been emboldened.  Latvia became the first EU member to open a representative office of "Taiwan" instead of Taipei.  

Many wargame scenarios are premised on China attacking Taiwan, but this does not seem to be the most likely scenario. Top US military officials have testified before Congress that Beijing wants to have the ability to invade and hold Taiwan within six years based on comments from President Xi to the People's Liberation Army.  Yet, if China senses that the status of Taiwan is truly changing, it could move against the Pratas Island, which is off the east coast of China and the south tip of Taiwan.  It is closer to Hong Kong than Taiwan.  It is an uninhabited atoll with a garrison.  Taking this island would send a signal about its determination, with the costs and risks of invading Taiwan. It is true to the ancient Chinese idiom about killing a chicken scares the monkeys.  

Bannockburn's World Currency Index, a GDP-weighted basket of the top dozen economies, rose fractionally after falling 1% in June.  The two largest components after the dollar are the euro and yuan.  The former slipped by was virtually flat near $1.1860 and the latter softened by less than 0.1 %.  The yen, with about a 7.3% weighting in the basket, was the strongest, gaining about 1.25% against the US dollar.  Sterling was almost eked a 0.5% gain.  The Indian rupee slipped 0.1%, while Brazil's real was the weakest currency in the index, falling by about 4.6% in July.   

The BWCI rose by 6.5% in the last nine months of 2020 after falling by 3.2% in Q1 20 as the pandemic struck and structural dollar shorts and safe-haven flows favored the dollar.  It fell by 1.5% in Q1 21 as if correcting the previous advance.  It rose by 1.1% in Q1.  More so than bilateral exchange rates, the BWCI gives the impression that broadly speaking the dollar's losses from last year are being consolidated more than reversed. 

Dollar:  The greenback's two-month uptrend stalled in the second half of July, sending the momentum traders and late longs to the sidelines. The dollar's pullback had already begun before the FOMC meeting at which the Fed lent support to priors about a tapering announcement in the coming months.  The next opportunity is in late August. The weaker dollar tone that we expect to carry into August could create the conditions that make a short-covering bounce ahead of the Jackson Hole symposium more likely.  Some assistance,  like the moratorium on evictions, ended on July 31, and others, like the federal emergency unemployment compensation (where states continue to participate), are finishing in early September. Meanwhile, the Biden administration appears to see some of its infrastructure initiative approved in a bipartisan way and the other part through a reconciliation mechanism that it can do if there is unanimous support from the Senate Democrats.  Inflation remains elevated, and Treasury Secretary Yellen and Federal Reserve Chair Powell warned it may remain so for several more months but still expect the pressure to subside.  The price components of the PMI have eased in the last two reports. There appears to have been some normalization in used car inventories that also reduce the pressure emanating from the one item alone that has accounted for about a third of the monthly increase of late.  

Euro:   The leg lower that began in late May from around $1.2265 extended more than we had expected and did not find support until it approached $1.1750 in the second half of July.  A trough appears to have been forged, and the euro finished near the month's highs.  Technical indicators favor a further recovery in August.  Overcoming the band of resistance in the $1.1950-$1.2000 shift the focus back to the highs.  The low for longer stance by the ECB may be bullish for European stocks and bonds.  The Dow Jones Stoxx 600 reached new record highs in late July.   Bond prices are near their highest levels since February-March.  The IMF raised its 2021 growth forecast for the euro area to 4.6%from the 4.3% projection in April and 4.3% next year from 3.8%.  The economy seemed to be accelerating in Q3, but the contagion and new social restrictions may slow the momentum.  Inflation is elevated about the ECB's new symmetrical 2% inflation target, but it pre-emptively indicated it would resist the temptation of prematurely tightening financial conditions.  The debate at the ECB does not seem about near-term policy as much as the commitment and thresholds for future action.  

 

(July 30,  indicative closing prices, previous in parentheses)

 

Spot: $1.1870 ($1.1860)

Median Bloomberg One-month Forecast $1.1885 ($1.1950) 

One-month forward  $1.1880 ($1.1865)    One-month implied vol  5.3%  (5.6%)    

 

 

Japanese Yen: The correlation of the exchange rate with the 10-year US yield is at its highest level in a little more than a year (~0.65, 60-day rolling correlation at the level of differences).  The correlation of equities (S&P 500) and the exchange rate is in the unusual situation of being inverse since early this year.  In early July, it was the most inverse (~-0.34) in nine years but recovered to finish the month almost flat. The yen rose by about 1.4% in July, offsetting the June decline of the same magnitude. Its 5.7% loss year-to-date is the most among the major currencies and the second weakest in the region after the Thai Baht's nearly 9% loss. The JPY110.60-JPY110.70 represents a near-term cap. The JPY109.00 area should offer support, and a break would target JPY108.25-JPY108.50.   The extension of social restrictions in the face of rising covid cases is delaying the anticipated second-half recovery.  The preliminary composite PMI fell to a six-month low in July of 47.7.  

 

Spot: JPY109.85 (JPY111.10)      

Median Bloomberg One-month Forecast JPY109.85 (JPY110.70)     

One-month forward JPY109.80 (JPY111.05)    One-month implied vol  5.4% (5.4%)  

 

 

British Pound:  Sterling reversed lower after recording a three-year high on June 1 near $1.4250 and did not look back.  It dipped briefly below $1.38 for the first time since mid-April on the back of the hawkish Fed on June 16 to finish July at new highs for the month and above the downtrend line off the early June highs.   A convincing move back above $1.40 would confirm a low is in place and a resumption of the bull move, for which we target $1.4350-$1.4375 in Q4.  The postponement of the economy-wide re-opening until the middle of July, and a central bank looking past the uptick in CPI above the 2% medium-term target, weighed on sentiment.  The central bank will update its economic forecasts in August, and both growth and inflation projections likely will be raised. The furlough program ends in September, and it may take a few months for a clear picture of the labor market to emerge.  Nevertheless, the market has begun pricing in a rate hike for H1 22.  

  

Spot: $1.3905 ($1.3830)   

Median Bloomberg One-month Forecast $1.3930 ($1.3930) 

One-month forward $1.3910 ($1.3835)   One-month implied vol 6.6% (6.5%)

  

 

Canadian Dollar:  The Canadian dollar reached its best level in six years in early June (~$0.8333 or CAD1.20) but has trended lower amid profit-taking and the broad gains in the US dollar.  The usual drivers of the exchange rate:  risk appetites, commodities, and rate differentials were not helpful guides recently.  Canada has become among the most vaccinated countries, and the central bank was sufficiently confident in the economic outlook to continue to slow its bond purchases at the July meeting despite losing full-time positions each month in Q2. Speculators in the futures market have slashed the net long position from nearly 50k contracts (each CAD100k) to less than 13k contracts in late July.  The downside correction in the Canadian dollar appears to have largely run its course, and we anticipate a better August after the heavier performance in July.  Our initial target is around CAD1.2250-CAD1.2300.  

 

Spot: CAD1.2475 (CAD 1.2400) 

Median Bloomberg One-month Forecast  CAD1.2435 (CAD1.2325)

One-month forward CAD1.2480 (CAD1.2405)    One-month implied vol  6.8%  (6.5%) 

 

 

Australian Dollar:  Since peaking in late February slightly above $0.8000, the Australian dollar has trended lower and by in late July briefly dipped below $0.7300, posting a nearly 9% loss over the past five months. The 50-day moving average ~$0.7570) fell below the 200-day moving average (~$0.7600) for the first time since June 2020, illustrating the downtrend after the strong recovery from the low near $0.5500 when the pandemic first stuck.  The combination of a low vaccination rate and the highly contagious Delta variant forced new extended lockdowns for Sydney and social restrictions that have sapped the economy's strength.  It will likely slow the central bank's exit from the extraordinary emergency measures.  Indeed, the Reserve Bank of Australia is likely to boost its weekly bond-buying from A$5 bln to at least A$6 bln.  A convincing break of $0.7300 could open the door for a return toward $0.7000, but we suspect the five-month downtrend is over and anticipate a recovery toward $0.7550 over the next several weeks.  

 

Spot:  $0.7345 ($0.7495)       

Median Bloomberg One-Month Forecast $0.7425 ($0.7610)     

One-month forward  $0.7350 ($0.7500)     One-month implied vol 8.9  (8.5%)   

 

 

Mexican Peso:  The dollar chopped higher against the peso in July and reached a high near MXN20.25 on July 21. It trended lower and, in late July, fell below the seven-week trendline support near MXN19.90.  After finishing June less than 0.1% weaker, the greenback lost about 0.4% against the peso in July, which was the fifth consecutive month without a gain.  The other notable LATAM currencies were the weakest three emerging market currencies (Chilean peso ~-4.1%, Colombian peso ~-4%, and the Brazilian real ~-3.8%).  If the upper end of the dollar's range has held,  a break of MXN19.80 may warn a test on the lower end of the range (~MXN19.50-MXN19.60).  The 5.75% year-over-year CPI for the first half of July and the highest core inflation for early July in more than 20-years keep expectations for another rate hike intact when Banxico meets on August 12.  The market has another hike priced in for the September 30 meeting as well.  The dispute with the US over measuring domestic content for auto production under USMCA could undermine Mexico's role in the continental division of labor, but instead, producers in Mexico may choose to pay the WTO auto tariff standard of 2.5%.  The IMF's latest economic forecasts revised the projection for Mexican growth this year to 6.3% from the April projection of 5%.  

 

Spot: MXN19.87 (MXN19.95)  

Median Bloomberg One-Month Forecast  MXN19.94 (MXN19.97)  

One-month forward  MXN19.95 (MXN20.02)     One-month implied vol 10.5% (10.7%)

  

 

Chinese Yuan: The dollar spent most of July within the trading range that had emerged in late June found roughly between CNY6.45 and CNY6.4950. The range was maintained even after the PBOC unexpectedly cut reserve requirements by 50 bp (announced July 9). However, Beijing's more aggressive enforcement of antitrust, discouragement IPOs abroad, making private education non-for-profit without foreign investment triggered sales of Chinese shares. It helped lift the dollar in late July to around CNY6.5150, its highest level in three months and just shy of the 200-day moving average.  The pursuit of domestic policy objectives appears to be putting at risk strategic goals.  A drying up of capital inflows from spooked foreign investors may have slow efforts to liberalize capital outflows that could eventually lead to making the yuan convertible.  At the same time, China's actions give a timely example of what holds the yuan back from a significant role in the world economy and why a technology solution (e.g., digital yuan) will not suffice.  As the dollar briefly traded above the upper end of its recent range in July, the risk is that it slips through the lower-end range, which could spur a move toward CNY6.40.  

 

Spot: CNY6.4615 (CNY6.4570)

Median Bloomberg One-month Forecast  CNY6.4555 (CNY6.4360) 

One-month forward CNY6.4780 (CNY6.4815)    One-month implied vol  4.0% (4.7%)

 

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World’s Largest Pension Fund Slashes US Treasury Exposure By Record Amount

World’s Largest Pension Fund Slashes US Treasury Exposure By Record Amount

The world’s largest pension fund, Japan’s Government Pension Investment Fund, made a record cut to the weighting of Treasuries in its portfolio last fiscal year,…

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World's Largest Pension Fund Slashes US Treasury Exposure By Record Amount

The world's largest pension fund, Japan’s Government Pension Investment Fund, made a record cut to the weighting of Treasuries in its portfolio last fiscal year, sparking a global debt selloff.

GPIF slashed it US government bonds and bills to 35% of foreign debt holdings in the 12 months ended March, from 47% previously, according to an analysis by Bloomberg of the latest data.

Source: Bloomberg

Notably, that level of exposure is below FTSE Russell's World Government Bond Index's 38% weight in Treasuries (so GPIF is actually underweight USTs on a global basis).

The giant Japanese fund shifted into mostly European sovereigns with France, Italy, and Germany benefiting the most...

Source: Bloomberg

GPIF “substantially adjusted” allocations to bonds denominated in the dollar, euro and pound as an estimated tracking error was relatively high in the first half after the pandemic drove up market volatility, Eiji Ueda, the fund’s chief investment officer, wrote in the report.

Which helps explain overall Japanese official holdings of USTs over the past year...

Source: Bloomberg

GPIF's decision follows a longer-term trend evident in other major nations as 'dedollarization' accelerates...

Source: Bloomberg

As with many other aspects of Japanese culture, "GPIF has a large influence over the investment decisions of other pension funds in Japan,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “What it does has an impact in the market.”

However, Sera suggests a lot of the selling was because hedged Treasuries were unattractive: “Current yield levels don’t compensate investors enough to take foreign-exchange risks,”

Something that is now very much incorrect as FX-hedged Japanese investors are getting the best yields since 2014...

Source: Bloomberg

Interestingly as Morgan Stanley pointed out, we think that it is important to avoid the trap of forcibly fitting a narrative to lower yields, a trap investors dealt with merely four months ago:

Treasury yields rose sharply in March, largely due to selling from Japanese investors, based on their fiscal year-end considerations.

Yet, most investors mistook the rise in yields as validation for a super-hot economy, and the consensus bought into the idea that 10-year yields were headed above 2%. We cautioned investors that yields had overshot relative to the economic reality.

Over the coming weeks, economic data in the US couldn’t keep up with unrealistic expectations, and 10-year yields started grinding lower.

Source: Bloomberg

In other words, GPIF's decision to dump US Treasuries fooled the world into believing the recovery was accelerating... But of course, now that yields are collapsing again, the asset gatherers and commission-rakers conveniently brush it off as "QE-driven distortion"...

Does GPIF know something the rest of the world doesn't about just how 'transitory' inflation is?

Tyler Durden Mon, 08/02/2021 - 15:16

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Best Penny Stocks to Buy Now? 3 to Watch In Early August

Are these penny stocks worth adding to your watchlist next month?
The post Best Penny Stocks to Buy Now? 3 to Watch In Early August appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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3 Penny Stocks For Your Early August Watchlist 

With a new month here, the time to find the best penny stocks to buy is now. But, it’s not as easy as making a watchlist and hoping for profits. Rather, investors need to understand where the stock market is headed, and which penny stocks may benefit. In 2021, it’s all about considering how short-term trends may result in heightened popularity or volume with certain penny stocks. 

And because there are so many events going on simultaneously, it can be a lot to keep track of. However, by paying attention to the news and understanding wholly how it could affect different industries or companies in specific, investors can work to stay one step ahead of the game. The best trader will always be the one with the most information on hand. And in 2021, information is more accessible than ever. 

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With the Robinhood IPO occurring only a few days ago, we see that trading is open to all. Because the stock market is so democratized right now, billions in capital have flooded in over a short time frame. So, recognize that volatility is high, but the chance of turning a profit can be equally high if you know how to trade penny stocks. With all of this in mind, let’s take a look at three to watch in early August.

3 Hot Penny Stocks to Watch Right Now 

  1. New Oriental Education & Technology Group Inc. (NYSE: EDU
  2. Ebang International Holdings Inc. (NASDAQ: EBON
  3. Globalstar Inc. (NYSE: GSAT

New Oriental Education & Technology Group Inc. (NYSE: EDU)

In the past few months, the trend of education penny stocks has increased greatly. And one of the more interesting companies in this field right now is New Oriental Education & Technology Group Inc. This company offers K-12 private educational test preparation services. As of May 31st, 2020 the company’s services and programs were offered in 104 schools, 1,361 learning centers, and 12 bookstores. This is a substantial reach for the company and one that could prove to be beneficial to it in the long run. 

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Only recently, the Chinese government placed a ban on for-profit tutoring. While this expectedly resulted in a price drop for EDU stock, shares did make a small comeback shortly after. Over the past year, EDU stock has lost over 85% of its value.

However, in the past few days, shares have climbed by over 15%. In addition, the company’s volume during that time has also increased substantially. Needless to say, the situation in China may still have more questions than answers so a more speculative sentiment has materialized in the market. Based on this information, it’s up to you to decide if EDU stock is worth watching or not.

Ebang International Holdings Inc. (NASDAQ: EBON)

Ebang International Holdings Inc. is a blockchain penny stock that we’ve been covering for quite some time. The company creates a large range of blockchain-related products. And for that reason, its share price is usually highly correlated with that of certain cryptocurrencies.

In specific, Ebang manufactures Bitcoin mining machines for sale in the U.S., China, and Hong Kong. The company provides mining machine hosting services for remote usage as well. This has become a popular trend among Bitcoin miners, as remote hosting is much more efficient than running in-person operations.

With cryptocurrencies like Bitcoin and DogeCoin exploding in value at certain points in 2021, the company has experienced a lot of positive momentum as well. 2021 has been a landmark year for crypto because of its large growth in popularity and massive attention in the news. And as stated before, it’s important to stay up to date with the price of crypto as EBON stock often moves with the crypto industry as a whole. In addition, the large microprocessor shortage witnessed over the past few months has been a major benefit to EBON. 

As a provider of Bitcoin mining machines, Ebang has seen the demand for its products rise substantially during that time. In the past five days, shares of EBON have risen by over 3.5%. While this may not seem like a major gain, it is substantial considering EBON’s trajectory throughout the last six months or so. With this information in mind, is EBON a contender for your penny stock watchlist?

Penny_Stocks_to_Watch_Ebang_International_Holdings_Inc_EBON_Stock

Globalstar Inc. (NYSE: GSAT)

Globalstar Inc. is a communications penny stock that has continued to make moves in the market over the last year or so. YTD, shares of GSAT stock are up by a staggering 305% or so. And while prices are down in the last month, we can look at the future prospects that Globalstar has to see where it could be headed. 

For some context, Globalstar is a company that provides mobile satellite services such as GPS tracking for emergency locations, anti-theft, asset tracking, and more. In addition to this, it offers IoT tracking devices for cargo, container, and rail cars. With the increasing globalization of the world, devices like these are important to keep the transport industry running. And, it also works as a complement to Globalstar’s other assets. 

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On July 1st, Globalstar announced its partnership with FocusPoint International Inc. FocusPoint will provide crisis assistance services under the Global Overwatch & Rescue Plan to Globalstar customers.

“We are so pleased to extend this valuable service to Globalstar customers. Many of our users partake in extreme sports and engage in higher than average travel frequency making this offering a service that can help further improve our customers’ peace of mind. FocusPoint provides a comprehensive risk consulting service that is a great compliment to the connectivity we provide our customers.” 

The CEO of Globalstar, David Kagan

The safety market is one that is both large and growing. With the pandemic coming back for a fourth wave, many are forgoing vacations to large population areas, and instead choosing to stay outdoors. This means that there could be heightened demand for GSATs products if all goes according to plan. Keeping this recent announcement in mind, will GSAT stock be on your watchlist?

Penny_Stocks_to_Watch_Globalstar_Inc._(GSAT_Stock_Chart)

Which Penny Stocks Are You Investing In?

Finding the best penny stocks in 2021 can be challenging. But, by learning how to trade penny stocks, investors can stay ahead and feel confident in their strategies moving forward. With all of this in mind, which penny stocks are you investing in right now?

The post Best Penny Stocks to Buy Now? 3 to Watch In Early August appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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