Market Update - Week Ended November 18, 2018

Transcription

1 Market Update - Week Ended November 18, 2018 Macro Commentary Gold and silver recovered some of the losses from last week s sell off on renewed efforts by China and the U.S. to resume more comprehensive talks. Palladium made new all-time highs as positive trade talks and a recovering Chinese stock market compliment an already strong supply/demand story. Apple and Goldman Sachs stocks slid this week causing some nervousness for the rest of the equity markets. Further uncertainty crept into markets on stories that the new Democratic controlled house will not accept the Mexico-Canada agreement in its current form. Wording from the last FOMC meeting combined with comments by some of the Fed members this week are causing analysts to think that the Fed s interest rate path may be altered after the December hike. President Trump s comments on Friday that China wants to make a deal culminated a week of positive news regarding U.S. - China trade talks. Earlier in the week China s Vice Premier Liu and Treasury Secretary Mnuchin resumed talks for the first time in months. The White House s Chief Economic Advisor Larry Kudlow said The U.S. and China have resumed contact at all levels and further scolded Director of U.S. Trade Peter Navarro s hawkish comments over China trade negotiations earlier in the week. Some momentum is building in front of the G20 talks between the two presidents which should help the precious metals heading into the Nov 30th meeting. The Hang Seng Index gained over 600 points this week on optimism regarding increased trade discussions. The equity recovery has supported the precious metals rally this week. Besides the global slowdown, weak housing market and trade disagreements, the equity markets are dealing with recent negative developments in the tech and banking industries. These sectors, especially the tech companies, were leading the U.S. market growth story this year. Declining Apple iphone sales continue to pressure the rest of the tech industry as several suppliers of Apple parts this week have indicated lower future earnings as a result of a reduction

2 in demand by a major client. Furthermore, Facebook continues to have negative news issues regarding its slow reaction to U.S. election meddling which may cause an increase in government regulations. Additionally, this week saw Goldman Sachs stock sink on the back of the Malaysian 1MDB scandal. Even Amazon has lost 20 pct of its value in the past few months off of concerns on economic growth. A continued correction in the stock market could affect employment which will ultimately help gold. As the new congress settles in, agendas are being discussed regarding U.S. trade deals and banking oversight. The previous Republican controlled house worked to reduce the over regulation which burdened the economic recovery after the 2008 meltdown. Democrats this week have made it clear that things will change. Maxine Waters, who could take over the House Financial Services Committee said, the days of weakening banking regulations will come to an end. Furthermore, some Democrats have also signaled concern over the recent USMCA trade agreement with Mexico and Canada. The January change in the makeup of the congress may cause some uncertainty in the new year. The last FOMC wording change describing the slowdown in business spending was the first indication that the Fed recognizes some bumps in the road. This week some of the other members of the committee started to take a more cautious tone. After all, how can they ignore the global weakness, housing slump and market volatility that has been going on recently? The President of the San Francisco Federal Reserve Mary Daly said, Economic conditions merit gradual normalization of monetary policy and further noted that Fed rate hikes are not on auto pilot. Atlanta Fed President Raphael Bostic said the central bank is not too far from a neutral interest rate. He also noted concerns over global growth and fading fiscal stimulus. The tone did not go unnoticed by the USD as it drifted off slowly towards the end of the week. Chairman Powell also spoke this week and sounded as hawkish as ever praising the economy as he has been for the last several months. He did mention global growth slowing, saying you still see solid growth, but you see growing signs of a slowdown and it is concerning. It is evident that December s meeting will have more worries to digest than in previous meetings. October s CPI report showed no signs of price increases for consumers. Housing is the main component in the CPI and house price pressures were low with rent only slightly higher. Energy prices kept the CPI in line for October but energy prices have fallen a great deal in front of next months number. The Atlanta Fed Business Expectations for November also showed no inflation.

3 The expectation came in below estimates at 2.2% vs 2.3%. The Philadelphia Fed Survey came in much lower than anticipated at 12.9 vs a consensus of Unfilled orders led the Philly fed lower. Retail Sales did better than expected at 0.8% vs consensus of 0.5%. Gold Gold opened up at the 1208 area on futures and tested below 1200 a few times in the early part of the week. Gold saw short covering midweek when the market got a little ahead of itself at a false break of Gold then rallied off of a lower USD testing the 1225 area on the exchange. The upcoming expiration of the December contract in gold which is usually the largest expiration for the year normally places some pressure on the market as some firms square positions rather than roll for the year end. However, if the market expects a change to a more dovish interest rate path for 2019 in the December FOMC meeting then the weight on the U.S. dollar will be enough to cancel out the gold futures expiry pressure. Gold 1-Month Price Chart Ended November 18th, 2018 Silver Silver opened at the area this week and traded lower with gold to the level on the exchange by midweek. Silver managed a recovery to the level by Friday. The Asian equity market rally helped silver recover in the latter part of the week. According to the GFMS team this week the silver market surplus will increase for 2018 over 2017 by 2.4 million ounces.

4 GFMS attributes the increase from mine supply which will jump by 13 million ounces. The GFMS further reported that physical demand is expected to fall by 3% in Scrap supply is supposed to fall 1% according to the report and growth in exchange inventories have increased for the second year in a row. Silver 1-Month Price Chart Ended November 18th, 2018 Platinum Group Metals Platinum lagged the rest of the precious metals this week closing at the level on the exchange. Platinum opened around 855 and fell to the 830 level in the futures before recovering slightly with the rest of the complex on Friday. Platinum was held back this week by speculative ratio related selling against the Palladium which made all time highs this week. Palladium opened at the 1102 area and dipped very briefly to 1076 before mounting a strong rally to all time highs at 1169 on the exchange. Continued demand for physical combined with positive Asia and trade news benefitted the price once again.

5 Platinum 1-Month Price Chart Ended November 18th, 2018 Palladium 1-Month Price Chart Ended November18th, 2018

6 What to Watch This Week About Us Kilo Capital is a specialty finance and trading company that provides tailored financing solutions and risk mitigation tools for companies who work, trade, deal or invest in precious metals. Our team of experienced precious metals professionals structure the right combination of loans, metal leases, select inventory finance, and hedging services so that our clients achieve their business goals. We work extensively with jewelry manufacturers and wholesalers, coin dealers, metal refiners, other industrial users of precious metals and investors in gold, silver, and platinum. How We Can Help Through our subsidiary, Precious Yield, we offer astute precious metals investors unallocated deposits of gold, silver, and platinum. In return for term deposits of these metals, we pay interest on gold, silver, and platinum that is greater than that customarily offered by the large bullion banks.

7 We apply our deep understanding of the businesses active in jewelry wholesale, metal refining, scrap aggregation, coin and investment bar dealing, and other precious metal businesses to help with with the unique challenges precious metals present. We offer highly specialized lending solutions including precious metals loans, leases, and select inventory finance to companies that use precious metals. Our lending solutions are structured such that your metal price exposure is fully hedged. As a result, you can focus on what really matters - running your business. To discuss how we can help you achieve your metals related objectives, please call us today or visit us at and Contact Us Sales and Trading team Trading Desk: contact@kilocapital.com Disclaimer Kilo Capital LLC, its successors and assigns, and its subsidiaries and affiliates (collectively, Kilo ) produce newsletter services which, along with any related publications and its website (collectively, the Newsletter ), are authored and edited from time to time by members of the Kilo team. You and your affiliates (collectively, the Reader ) acknowledge that the Newsletter is provided for educational and informational purposes only and is not intended to provide investment, trading, tax or legal advice. Reader should consult a professional financial or investment adviser, CPA, broker or attorney for such advice and should conduct his or her own research and due diligence before making any investment decision. Investing involves substantial risk and you may lose some or all of your investment. While past performance may be analyzed in the Newsletter, past performance should not be considered indicative of future performance. To the maximum extent permitted by law, Kilo disclaims any and all liability in the event any information, commentary, analysis, opinions, training or recommendations in the Newsletter prove to be inaccurate, incomplete, or unreliable, or result in any investment or other losses. Reader agrees to indemnify and hold harmless Kilo from and against any damages, costs and expenses, including any legal fees, potentially resulting from the application of any of information provided by Kilo in the Newsletter.

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