Market Update - Week Ended October 07, 2018

Transcription

1 Market Update - Week Ended October 07, 2018 Macro Commentary The precious metals complex was supported early in the week by a firm gold price in reaction to the Italian budget debate. Later in the week precious metals prices traded lower as positive economic news and Fed comments placed the focus on stocks and rates. Jerome Powell s long way away from neutral comments spiked the already rising U.S. treasury yield market across the curve. The jump in rates put pressure on domestic stock markets for the rest of the week. Oil surged as the market pondered whether producers can fill the shortfall after the Iran sanctions start. Despite the recent positive news of a USMCA (formerly NAFTA) agreement, China - U.S. relations fell further as Vice President Pence laid out a laundry list of complaints. The unemployment rate dropped to 49 year lows highlighting a positive week of economic numbers. Italy s bond market fell into distress early in the week on budget disputes and comments regarding a return to the lira, but the short lived crisis eased later in the week. The Italian government created turmoil in financial markets on Tuesday after new comments that Italy would be better outside of the eurozone. Claudio Borghi made the following statement on a radio show, "I am truly convinced that Italy would solve most of its problems if it had its own currency". Later in the week the government calmed the market by putting forth a three year plan to reduce the budget deficit. Gold prices eased once the plan was put forth. The speech given earlier this week by Fed Chairman Jerome Powell once again highlighted the strength of the economy and the intention of the Fed to continue raising interest rates. He went a step further stating that rates could be raised above neutral. Markets took this as a clue that perhaps four interest rate hikes in 2019 are now more probable. Treasury yields spiked and the bond market sold off triggering a sell off in the equity markets after reaching an all time high in

2 the previous session. Questions linger in the market wether higher interest rates will slow the economy too much or wether this is just a normal adjustment. Crude jumped over three dollars this week off market worries on supply deficiencies which may occur after the Iran sanctions commence. Comments from Saudi Arabian officials that they could see WTI above $80 a barrel helped support supply fears. The market peaked late in the week but was slowed down by a strong build in inventory which was revealed in the weekly EIA Petroleum Status report. Saudi Crown Prince Mohammad Bin Salman calmed the market further issuing a statement in response to some criticism from President Trump. The statement said, The request that America made to Saudi Arabia and other OPEC countries is to be sure that if there is any loss of supply from Iran, that we will supply that. And that happened...so we export as much as 2 barrels for any barrel that disappeared from Iran recently. So we did our job and more. We believe the higher price that we have in the last month, it s not because of Iran. It s mostly because of things happening in Canada, and Mexico, Libya, Venezuela and other countries that moved the price a little bit higher. The trade skirmish has spilled into geopolitical tension between China and the U.S. After the U.S. administration's recent success in negotiating a trilateral agreement on trade with Mexico and Canada, the Trump team moved further away from a China resolution after strong statements from the President were followed by a speech given by Vice President Pence which criticized China on multiple fronts. Pence said that China s unprecedented effort to influence American public opinion and upcoming elections would not be tolerated. The Vice President cited a recent incident in the South China seas in which a Chinese vessel came within 45 yards of a U.S. destroyer. Pence also spoke about the Chinese government's activities in controlling business and it s citizen s social behaviours. The Vice President went on to ask Google not to bend to the Chinese government's request to create a search engine that would accommodate China s censorship and oppression. A Bloomberg news report that China had forced one of it s companies to place secret spy chips in U.S. companies servers further added to the geopolitical tension. It is clear that a solution is very far away and that most economists feel that eventually U.S. tariffs on China will incorporate all imports at a higher rate. Owning gold in one s portfolio is a strategic hedge against the increasing geopolitical risk which is accelerating between the two economic powers.

3 Despite a fall in the current nonfarm number due to weather related issues, the overall employment picture continued to be solid. Positive revisions in non farm from the previous month and a 49 year low in the unemployment rate highlighted the week s economic numbers. Further positive news came from a strong ISM Non Manufacturing number. The service industry, which is the largest part of the U.S. economy, showed its best results in 10 years. Housing however, continued to struggle with a tepid MBA Mortgage number for the week and weaker than expected Construction Spending result for the month of August. Gold Gold opened at the 1196 area in the futures and moved higher to 1212 off of the E.U. - Italy budget problems. The rest of the week saw gold trade lower to the 1205 area by the close. The 1200 area has been a magnet for the gold market and it has failed to break higher despite a pause in the USD s ascent. Geopolitical tensions are rising and keeping gold from slipping under its mid August lows. Retail coin demand remains good despite falling ETF balances and increased short positioning in the futures. September U.S. Mint sales showed an increase in total coins sold to 60,500 units which was the highest since January of this year. Gold 1-Month Price Chart Ended October 7th, 2018

4 Silver Silver traded flat this week pausing after its strong performance last week. Silver closed around area in the spot cash market. Silver maintained a narrow range amidst mixed results on trade negotiations. Coin sales for silver held strong. September's Silver Eagle sales rose to a total of 2.9 million ozs from August s 1.53 million ozs. Silver 1-Month Price Chart Ended October 7th, 2018 Platinum Group Metals Platinum opened at the 818 area on the active futures month and inched up with gold to test the 840 level a few times during the week. Platinum settled back to 825 on the exchange by the close of the week. Palladium saw some profit taking as global equities resumed their descent. Palladium opened at the 1063 area and fell towards 1030 early in the week. The market managed to slowly recover by Friday to close back over 1063 on the exchange. The China stock markets will reopen this week and with it news of cuts in the reserve ratio requirement by 1% for commercial banks. China s central bank will pump $175 billion in to its economy to help small and medium

5 sized businesses obtain loans. This new round of stimulus may help stocks in the short run and boost palladium prices. Platinum 1-Month Price Chart Ended October 7th, 2018 Palladium 1-Month Price Chart Ended October 7th, 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. 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

7 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. The Newsletter s commentary, analysis, opinions, advice and recommendations represent the personal and subjective views of Kilo and are subject to change at any time without notice. The information provided in the Newsletter is obtained from sources that Kilo believes to be reliable and Kilo is not responsible for any errors or

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