Daily Close | Forex, Metals, Oil, Agriculture July 26, 2020

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Currencies

Last May, the company announced a cut in its dividend of 40%, from 15 euro cents to 9 euro cents. By doing so, the Fed has created a situation that allows the dollar to be used as a global prop. We must not underestimate the advantage the dollar has as the world’s reserve currency or the size of debt floating across the globe comprised of dollar based-agreements. The dollar’s modest decline is not a material factor for policy or trade, even if the momentum gets noticed. This has caused Fed Chairman Powell to attempt navigating a course that doesn’t cause the dollar to strengthen and devastate emerging markets. The dollar is beginning to fall, having broken its March lows and appears set up for a significant downtrend. We expect the yen to resume its role as a relative safe haven in the fiat word as investors see the dollar as an increasingly floored store of wealth. The streaking Australian dollar punched above the 71 level for the first time since February 2019.

The five-week slump in the Dollar Index is the longest since late 2017/early 2018. When you consider just how destabilizing currency swings can be it is easy to see how a strong dollar could obliterate the global economy. Although we were early dollar bears, the downside momentum appears stronger than the momentum indicators suggested last week. The US dollar slid to 22-month lows which would normally be accompanied by a rise in the inversely-priced crude oil. Of course, many U.S. based companies are multinational enterprises, have exposure to international economies, and are priced in US dollar on the American exchanges. During the last several years, the question of how to exit the Euro-zone monetary union and the euro has become an important economic issue. Looking at the cost of the euro in sterling over the past five years, one can see that there has already been a significant depreciation of sterling. The strongest major currency has been the Swedish krona, which often acts as a high-beta euro.It has risen nearly 6% against the US dollar.

The Euro and growth-linked Australian Dollar soared, with the latter trimming some of its gains later on. Only 26% of the portfolio is in US dollar terms, which is what you’d like to see in an international fund (or even less). This is as the haven-linked US Dollar experienced its worst week against its major counterparts on average since early June. The yen climbed last week, although this was a case of broad dollar weakness, rather than strength on the part of the yen.

Metals

These hedges are at an average price of A$1,847/oz (US$1,311/oz), but they make up only about 23% of gold production going forward. It’s worth noting that margins should only increase going forward as these 49% margins were achieved despite having hedges on roughly 15% of gold sales. Based on Gold Road’s industry-leading margins, and the potential for growth through M&A as cash grows, I continue to see the stock as a buy on dips. Gold prices may extend their rally if the FOMC rate decision and outlook reinforces the narrative of economic stabilization in tandem with progress on another coronavirus relief bill. For years, we have heard about the manipulative short position that the bullion banks hold on gold and silver. That’s why we are planning to take a gold trade, both in our Momentum Investing portfolio as well as our Trade Alerts portfolio. Based on the higher royalties stemming from higher gold prices, the company has raised its cost guidance slightly from A$1,200/oz (US$804/oz) at the midpoint to A$1,250/oz (US$838/oz).

Gold is the obvious hedge against this development, and thus my bullish case for (NEM) – the world’s largest gold producer. In mid-2019 this correlation broke down, with the yen trading sideways and gold moving higher despite the fact that Japanese real yields actually rose over this period. Higher rates are usually linked with falling gold prices. For now, we see that the gold trade is the right trade, until proven otherwise. In prior years gold and the yen have been closely correlated as both acted as a store of value amid easing U.S. monetary policy. With all currencies losing value relative to gold and silver, we believe the Japanese yen remains the least bad fiat currency option. He writes a bi-weekly in-depth analysis for one of Germany´s largest gold and silver retailer the “pro aurum group”. In prior years gold and the yen have been closely correlated with each other as both acted as a store of value amid easing U.S. monetary policy.

Because gold trades near (at) all time highs, stocks are right below all time highs and Treasuries (risk off trade) are right below all time highs. Gold and silver prices soared with the latter seeing the best week since 1998. As well he is publishing his bi-weekly comprehensive for his numerous international readers focusing on Gold, Silver, Mining, commodities and cryptocurrencies. As said in Gold Price Ready To ‘Blast’ Through All-Time Highs (which we published earlier today) the gold price is moving higher, strongly higher. He is well known for combining technical, fundamental and sentiment analysis into one accurate conclusion about the gold market.

Oil

This means that global oil inventories won’t return to its end of 2019 level at least until the end of 2021. But, by the end of the week, Brent crude had settled at $43.34 per barrel. A weaker greenback usually spurs buying of commodities priced in dollars, especially oil, because they become cheaper for holders of other currencies. It appears that speculators are staying away from the flat structure of current oil prices. This has resulted in a significant rise in global oil inventories. So as July closes out, oil prices remain trapped between the downside and upside pressures of the coronavirus and the recovery. Both the IEA and EIA anticipate global oil demand to increase in the months ahead as well according to their respective monthly oil reports. The outlook for crude oil demand in the US turned bearish as the latest weak US jobs report fueled growing economic uncertainty. Refinery throughput also turned south suggesting that US oil demand is plateauing amid rising COVID-19 cases.

While that was enough to trigger a sharp sell-off in equities, oil prices remained stable. Additionally, the oil and gas sector made up 3%, the entertainment industry made up 2%, and healthcare made up 1% of total loans. Crude oil price action has staged a monumental recovery since the commodity traded in negative territory this past April. Oil prices were firm and held above $41/bbl and the U.S. oil rig count increased for the first time since March. Fortunately, these two companies are integrated oil & gas companies with investment grade credit ratings. The automotive industry is moving towards electrification, with countries such as India, China, Great Britain, and France planning to ban production of gasoline vehicles within the next twenty years. Looking forward, however, the cartel of major oil producers have optimistic projections for world oil demand to recover during the second half of 2020 and into 2021. Energy Information Administration data showed weakening gasoline demand after a surge in the number of coronavirus cases.

Therefore, we think it could take longer for the global oil inventory to return to the pre-crisis level. Oil prices moved with considerable momentum at the start of the week, touching four-month highs. The number of long positions on the NYMEX WTI futures exchange fell by 6,205 contracts, compared with the previous week.

United States

Since leaving Wall Street I’ve dedicated my financial career towards studying this situation and helping people understand what’s actually happening. With the hype surrounding Tesla’s (NASDAQ:TSLA) second quarter earnings release, it seemed hard to see the stock racing any higher. I also like the holdings in Baidu (NASDAQ:BIDU) and China Mobile (NYSE:CHL), although I wish the exposure to the latter was much higher than its current 1.35% allocation. Market sentiment turned sour into the end of last week, with the S&P 500, Dow Jones and Nasdaq Composite giving up gains. The US economic recovery is stalling, and economic growth is beginning to reverse. Mr Biden is more than happy to keep the attention on Mr Trump — and not himself — as the campaign hits the stretch run. Alphabet (NASDAQ:GOOGL), Google’s parent company, will also be reporting Q2 earnings on Thursday, after the market close. Which is why I’ve long been suggesting that the order of recovery is going to be the US first, then the UK, then mainland Europe.

US Election 2020 Close Donald Trump continues to have the confidence of Americans on the economy, virtually the only area where he outshines Joe Biden. So after 11 years on Wall Street I walked out and left. In fact, Chevron (CVX), which represents 20.9% of VDE’s portfolio, announced a deal to acquire Noble Energy (NASDAQ:NBL) several days ago. The NASDAQ 100 finds itself sitting on a crucial uptrend, and a break of that uptrend would trigger a sell-off to around 9,760. The problems today are bigger than in 2008, and as the economy worsens, the Fed will attempt to print more, which can only be bullish for metals. Despite Trump’s rhetoric about American carnage, his arrival comes at a time of growing income inequality and general prosperity. Technology and Apple (NASDAQ:AAPL) have seen price rise these past weeks, even as the oscillators are trending down. The NASDAQ, which had rallied to record highs this summer, ended lower for a second week, falling 0.9%, finishing trade on Friday at 10,363.

All eyes turn to what is expected to be more stimulus from the US at the end of the week. His body will also lie in state in Washington DC at the US Capitol. The week saw the listing of 4 biopharma companies on the Nasdaq, which raised a combined $772.9 million. This is typically when everyone gets caught holding the bag, and while the Fed may try, they probably can’t maintain this level of market momentum.

Europe

EU leaders defied many of the naysayers after marathon talks, hammered out a deal with regard to the massive EUR 750 billion recovery fund. Brexit may further weaken sterling but we don’t know. It has 60 locations in 18 countries across 3 continents, with around 40% of its revenue coming from the EU region. Under the agreement, the EU will allocate 390 billion euros worth of grants and 360 billion euros worth of loans in order to stabilize the struggling eurozone economy. EU leaders defied many of the naysayers after marathon talks hammered out a deal with regard to the massive EUR 750 billion recovery fund.

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