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Mitsubishi Identifies Two Possible Gold-Supportive Factors

Kitco News

Investors may be overlooking some factors that potentially could underpin gold prices, says Mitsubishi. The metal has been held back by a strong dollar and expectations for more U.S. rate hikes, as well as a strong stock market that has reduced buying of gold as a hedge. However, two factors that could end up underpinning gold are political risks and rising inflation. “It is no secret that Donald Trump’s presidency hinges on the mid-term elections. If the Democrats gain control of the House of Representatives in November, impeachment proceedings could begin in fairly short order,” Mitsubishi says. “The political uncertainty engendered by an impeachment could see the dollar lose ground and give some support to gold (as it did in Bill Clinton’s impeachment in 1998-1999). The second supportive aspect is if inflation starts to outstrip the Fed’s guidance of raising interest rates to just over 3% by the end of 2019 – with the U.S. economy at full employment and inflation already hitting the Fed’s 2% target, it would not take much for inflation to outstrip nominal rates, increasing the attractiveness of gold as an inflation hedge.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Mitsubishi: Palladium Market Tight But Prices Sideways

Monday September 17, 2018 11:30

Palladium supplies remain tight, as reflected by backwardation, although U.S. dollar strength has capped gains in the metal, says Mitsubishi. Backwardation is when nearby contracts are more expensive than deferred and is generally seen as a sight of a tight market since users are paying a premium to get metal immediately. “Outright prices are moving in a sideways direction, however, as the strong dollar caps the upside,” Mitsubishi says. “However, the industrial outlook remains positive as long as the U.S. and Chinese economies continues to perform well and neither fall victim to escalating trade tensions between the two countries.” There is limited speculative interest in the palladium market, with bullish and bearish positioning light, Mitsubishi adds.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Commerzbank: Indian Gold Demand Rises In August But ‘Faltering Again’

Monday September 17, 2018 08:35

Gold demand in India, the world’s second-biggest gold-consuming nation, picked up in August but may be faltering again this month, reports Commerzbank. Analysts note that the country’s Finance Ministry reported that the country imported significantly more gold in August. “Advantage was clearly taken of the fall in local prices to an eight-month low in August to replenish stocks,” Commerzbank says. “Demand in India already appears to be faltering again due to the higher prices, however. Local Gold traders are reporting negative premiums for the first time in over a month.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

BBH: Path of U.S., European Monetary Policy ‘Fairly Clear’

Monday September 17, 2018 08:35

The trajectory of monetary policy in the U.S. and Europe has been “fairly clear,” says Brown Brothers Harriman. “There is practically no doubt that the Fed will hike rates on Sept. 26. Despite softer-than-expected PPI and CPI figures, the market has become more confident of another move in December. The Federal Reserve's balance sheet unwind reaches its maximum velocity of $50 billion a month in Q4. It is also understood that [the] ECB [European Central Bank] will reduce its asset purchases to 15 billion euros a month in Q4 and finish at the end of the year.  Interest rates will not be raised for another year.  The reinvestment of maturing proceeds appears to be the next operational issue that needs to be sorted.” The Bank of England has been clear also, with rates likely to gradually increase, BBH says.  “By gradually, the Federal Reserve has meant in practice anything between two and four hikes a year.  By gradually, the Bank of England means once a year.” Meanwhile, BBH says, the Bank of Japan has been “more difficult to read for investors,” buying fewer Japanese government bonds but denying tapering. “The BOJ meeting this Wednesday is not expected to announce any new innovations and reiterate its commitment to boost prices,” BBH says.  

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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