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The Dovish Fed Tightened Last Week by Reducing Its Balance Sheet

Federal Reserve monetary policy focuses on maintaining a neutral federal funds rate at 2.25% to 2.50% through 2019, which has been my Fed call. However, I disagree with Fed Chair Jerome Powell when he says that unwinding the Federal Reserve balance sheet is not tightening monetary policy.

The balance sheet was increased to $4.5 trillion on a series of quantitative easingmoves that followed the 2007 to 2008 Great Credit Crunch. Removing this stimulus by unwinding the balance sheet has been called quantitative tightening, as reserves are removed from the banking system. This is Fed tightening.

Each week, the Federal Reserve takes a snapshot of its balance sheet on Wednesday. On March 20, the balance sheet was marked at $3.962 trillion, down $9 billion from the reading on March 13. This is a Fed tightening move!

Federal Reserve balance sheet trends
​Federal Reserve

Last week, the Federal Reserve put a time stamp on the unwinding, saying that it will stop at the end of September 2019. In my opinion, this is an unwind-pause, and unwinding will resume after the presidential election in 2020. Federal Reserve Chairman Jerome Powell wants the balance sheet reduced to $3.5 trillion, and the schedule through September will not meet this goal.

The new unwinding schedule calls for a drain of $50 billion in March and April, then down to $35 billion over the next five months through September. This would total an unwinding of $275 billion. With the balance sheet now at $3.962 trillion, the balance sheet will need to be reduced by another $196 billion, which will require quantitative tightening to resume after the presidential election.

The daily chart for the yield on the 10-Year U.S. Treasury Note

The daily chart for the yield on the 10-Year U.S. Treasury Note
Refinitiv XENITH

The daily chart for the yield on the U.S. Treasury Note shows that this yield has been under a “death cross” that favored lower yields since Jan. 11, when the 50-day simple moving average fell below the 200-day simple moving average to show that lower yields would follow. This yield was 2.70% that day and declined to a 2019 low yield of 2.42% on March 22.

This yield has been below its semiannual pivot at 2.605% since March 20, when the Federal Open Market Committee (FOMC) announced a more dovish view on monetary policy. The yield closed last week at 2.44%, with my pivot for this week at 2.47%. Lower yields are a clear sign that economic weakness in Europe is helping a “flight to safety” into U.S. Treasuries.

The weekly chart for the yield on the 10-Year U.S. Treasury Note

The weekly chart for the yield on the 10-Year U.S. Treasury Note
Refinitiv XENITH

The weekly chart for the yield on the 10-Year U.S. Treasury Note yield shows that the decline in yields began from a high yield of 3.26% set during the week Oct. 12 as the stock market peaked. This week sets the lowest yield from this high at 2.42%, which is approaching the 200-week simple moving average, or “reversion to the mean,” at 2.36%. The decline in yield has the note below quarterly and semiannual pivots at 2.771% and 2.605%, respectively.

Daily chart for the SPDR S&P 500 ETF (SPY)

Daily chart for the SPDR S&P 500 ETF (SPY)
Refinitiv XENITH

The SPDR S&P 500 ETF (SPY) is 19.4% above its Dec. 26 low of $233.76 and is 5% below its all-time intraday high of $293.94 on Sept. 21. The ETF saw a “key reversal” day on Dec. 26, as the close of $246.18 that day was above the Dec. 24 high of $240.83. Investors should buy SPY on weakness to my semiannual value level at $266.14 and reduce holdings on strength to my annual risky level at $285.86. The ETF is below my monthly pivot at $281.13.

Weekly chart for the SPDR S&P 500 ETF (SPY)

Weekly chart for the SPDR S&P 500 ETF (SPY)
Refinitiv XENITH

The weekly chart for SPY is positive but overbought, with the ETF above its five-week modified moving average at $275.16. SPY is above its 200-week simple moving average, or “reversion to the mean,” at $238.43 after this average held at $234.71 during the week of Dec. 28. The 12 x 3 x 3 weekly slow stochastic readingrose to 88.80 last week, up from 88.51 on March 15 and moving further above the overbought threshold of 80.00. SPY may be a week away from becoming an “inflating parabolic bubble” with a reading above 90.00.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.

SOURCE: Investopedia

Gold Rises, Stays Solidly Above $1,300 Level on Recession Talk

By Barani Krishnan

Investing.com – Recession, or the mere thought of it, is good for gold.

Global financial markets were mired in illiquid trading on Monday and the spreads between U.S. three-month and 10-year Treasury yields modestly inverted as the session progressed as fears of a potential U.S. recession grew.

Spot gold, reflective of trades in physical bullion, was up $9.51, or 0.7%, at $1,322.95 per ounce at 2:49 PM ET (18:49 GMT), after scaling $1,324.57 earlier.

Gold futures for June delivery, traded on the Comex division of the New York Mercantile Exchange settled the official trading session up $10.30, or 0.8%, at $1,329 per ounce. It got to as high as $1,330.75 earlier.

Equity markets and the dollar, both contrarian trades to gold, declined in sluggish activity, adding to gold’s lure as a safe haven, precious metals analysts said.

“Brexit uncertainties, fresh concerns over lower U.S. economic growth, an overly cautious Federal Reserve and uncertainties on the China negotiations continue to encourage risk-averse investors to diversify their portfolios,” said Walter Pehowich, executive vice-president at Dillon Gage Metals in Addison, Texas.

Palladium prices rose as well to remain the world’s most expensive traded metal.

The spot price of palladium gained $19.20, or 1.2%, to $1,574.50 per ounce. It hit a record high of $1,616.30 last week.

Trades in other Comex metals as of 2:35 PM ET (18:35 GMT):

Palladium futures down $27.40, or 1.8%, at $1,542.90 per ounce.

Platinum futures up $11.30, or 1.3%, at $864.70 per ounce.

Silver futures up 16 cents, or 1%, at $15.56 per ounce.

Copper futures up 2 cents, or 0.5%, at $2.86 per pound.

 SOURCE: Investing.com

Buy Gold, Sell Stocks Is the ‘Trade of Century’ Says One Hedge Fund

One of last year’s best-performing hedge funds says the “trade of the century” is to buy gold and sell stocks as risk assets are due for another meltdown.

It’s only a matter of time until the bearish bet pays off big, according to Crescat Capital LLC. While the Denver-based firm has only about $50 million under management, it has a history of outperforming the S&P 500 Index — with its Global Macro Fund returning 41 percent last year alone. Now the investment company says it’s ready to capitalize on an end of the economic cycle as indicators warn that a recession is imminent in the coming quarters.

The consensus is pointing to a recession in 2020 or 2021, Tavi Costa, a global macro analyst at Crescat, said by phone. “We think it’s a lot closer than that and we have a number of macro timing indicators that we look at.”

Crescat goes long gold in CNY terms while shorting global stocks

Going long gold in yuan terms and shorting global equities currently explains three-quarters of the hedge fund’s strategy. While the firm uses the MSCI World Index in models to visualize the trade, it goes a bit deeper with its short position, selecting individual stocks and exchange-traded funds to bet against.

Among the warning signs, Crescat cites corporate insiders who are currently selling stocks hand over fist — indicating a potential stock bubble burst. In early 2017, those investors heavily sold shares while the S&P 500 continued climbing. That happened again in 2018. With the smart money selling once again, “the third time should be the charm for the stubborn U.S. market,” Crescat wrote to clients over the weekend.

U.S. economic data is deteriorating and inversions remain across the Treasury yield curve, the hedge fund pointed out. Measuring multiple yield spreads across the curve from Fed Funds to 30-year Treasury bonds, Crescat found that almost 45 percent of the curve is inverted.

“The last two times the credit markets had such a high distortion, asset bubbles began to fall apart shortly thereafter,” Crescat wrote.

Yield Inversions

As for the almost 13 percent rebound in global stocks in 2019, Costa said the firm has a high conviction it’s simply a bear-market rally. Just about everything has bounced since the start of the year, accompanied by an abrupt decline in the Cboe Volatility Index, or the VIX — signs reminiscent of head fakes in such advances.

“Soon the buy-the-dip mentality and bull-market greed will turn to fear. Selling will beget more selling. That’s how bear markets work,” Crescat wrote. “There is so much more ahead to profit from the short side of the market. The bear-market rally is running out of steam!”

The firm’s Global Macro Fund has posted an annualized return of near 12 percent since it was created in 2006, according to its website — greater than the S&P 500’s 8 percent. Crescat’s Long/Short and Large Cap funds have also outperformed.

“We’re not perma-bears by any means,” Costa said. “This is a very tactical bearish view right now, and hopefully when the market turns, we want to also time the bull market at some point.”

SOURCE: Bloomberg

Palladium at Record High, Gold Above $1,300 as Dollar Slides Pre-Fed

Investing.com – The going is as good as it can get for precious metals bulls as the spot prices of palladium and gold extended their rally on Monday, courtesy of a patient Fed.

With the Federal Reserve likely to announce another stay on interest rates at the end of the second of eight regular meetings on Wednesday, speculators chased palladium’s spot price to new highs above $1,580 an ounce and helped gold to a slightly stronger footing in $1,300 territory.

Spot palladium was up $22.05, or 1.4%, at 1,577.45 per ounce by 3:23 PM ET (19:23 GMT) after setting an all-time high of $1,581.75.

Spot gold, reflective of trades in physical bullion, rose by 93 cents, or 0.1%, to $1,302.85, after a session peak at $1,306.72.

Gold futures, traded on the Comex division of the New York Mercantile Exchange, however, settled a touch lower, with the benchmark April contract shedding $1.40 to end the day’s trade at $1,301.50 per ounce.

Palladium had already been rallying since last week on news that Russia was considering a temporary ban on the export of precious metals scrap. That fed fears of even tighter supply in a commodity that was already scarce. Palladium is critical to the automobile industry as it is a required material that enables catalytic converters to purify emissions of gasoline engines.

Investors sold down the dollar ahead of the Fed’s two-day meeting, pushing speculators toward precious metals that serve as alternate store of value. The dollar index, which measures the greenback against a basket of six currencies, slid by 0.1% to 95.968, after hitting a near-three-week low at 95.828.

“The markets doesn’t expect a rate hike at this meeting … like the economy, (they) are dependent on continued access to cheap credit,” said Walter Pehowich, executive vice president at Dillon Gage Metals in Addison, Texas. “We saw in the fourth quarter what happens when credit starts to recede.”

Trades in other Comex metals as of 3:23 PM ET (19:23 GMT):

Palladium futures up $19.95, or 1.3%, at $1,528.45 per ounce.

Platinum futures up $3.20, or 0.4%, at $835 per ounce.

Silver futures up 1 cent, or 0.1%, at $15.33 per ounce.

Copper futures flat at $2.91 per pound.

 

SOURCE: Investing.com

Gold gains on lackluster US data, Brexit deal doubts

Reusable: Gold coins 001

Gold hit nearly a two-week high on Wednesday as tepid U.S. economic data reinforced views the Federal Reserve would be patient on monetary policy, with bullion’s appeal also bolstered by uncertainty over a Brexit deal ahead of a key vote.

Spot gold was trading 0.6 percent higher at $1,310.03 per ounce and reached its highest level since March 1. U.S. gold futures settled $11.20 higher at $1,309.30.

“The U.S. PPI numbers came weaker-than-expected. This, coupled with the Brexit news, is helping gold,” said Bob Haberkorn, senior market strategist at RJO Futures

Domestic producer prices in the United States rose 1.9 percent on a year-over-year basis in February, the smallest annual increase since June 2017.

Tepid inflation and disappointing producer prices data this week support the Fed’s stance of keeping interest rates on hold, denting the dollar and lifting demand for non-interest-yielding gold. The U.S. central bank’s rate-setting committee will issue its next policy statement following its March 19-20 meeting.

“Traders are buying into the fact that they are expecting a very dovish U.S. Fed announcement,” Haberkorn said.

Gold breached the psychologically significant $1,300 level on Tuesday, helped by a weaker dollar, with demand for the U.S. currency taking a hit after Tuesday’s softer-than-expected U.S. February inflation data and falling government bond yields.

“Metals technically have more upside to go just on rising geopolitical uncertainty, specifically what’s going on in Britain,” Haberkorn added.

Prime Minister Theresa May lost a second attempt for her Brexit plan, plunging Britain deeper into a political crisis before the country’s planned March 29 departure from the European Union, and denting risk appetite.

However, European shares regained some ground on Wednesday, buoyed by optimism that British lawmakers were set to rule out a no-deal Brexit. Britain’s parliament is due to vote at 1900 GMT on whether the country should leave the EU on March 29 without a deal.

On the technical front, “gold is now heading towards the next potential resistance around $1313, a former support level,” said Forex.com analyst Fawad Razaqzada.

However, if the $1,300 support level gives away again, “we could see a more significant sell-off this time around.”

Concerns over slowing global economic growth were also bolstering appeal for gold, considered a safe store of value during economic or political uncertainties, analysts said.

Reflecting sentiment, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose about 0.4 percent on Tuesday, a second straight day of gains.

SOURCE: CNBC

Gold Back at $1,300; Brexit Fears Spark Rush to Safe-Havens

By Barani Krishnan

Investing.com – The high drama over Britain’s EU divorce has given gold bugs fresh $1,300 joy.

Despite winning a last-minute, legally binding concession from the European Union on Monday evening, U.K. Prime Minister Theresa May still lost a parliamentary vote on her Brexit plan later on Tuesday.

Gold futures for April delivery were up $10.85, or 0.8%, at $1,301.95 per ounce on the Comex division of the New York Mercantile Exchange by 3:00 PM ET (19:00 GMT). It moved up to a near two-week peak of $1,302.40 after the contract settled at $1,298.10, up $7.

Spot gold, reflective of trades in physical bullion, rose by $8.23, or 0.6%, to $1,301.68 by 3:00 PM ET after a session high at $1,302.09.

Gold saw stronger bids through Tuesday on Brexit developments. The shiny metal got a boost first on the back of weakness in the dollar as currency traders dumped the greenback against the sterling on initial signs that Britain’s exit plan had a chance of succeeding. As the news flow changed direction — and ended with the “no” vote — gold continued to see support on safe-haven bets against the U.K. currency.

Analysts said gold’s play in the near term, and chances of sticking at $1,300 levels, will depend on the outcome of May’s Brexit plan and how that affects the British pound.

May said before the vote she would hold a vote on Wednesday on whether to leave without a deal and, if Parliament rejects that, then a vote on whether to ask for a limited delay to Brexit.

“Depending on what happens next, we could see the mid $1.20s again for sterling over the coming weeks,” said Fawad Razaqzada, a London-based analyst with forex.com. “However, a surprise victory for May could trigger a big short squeeze rally with $1.35 being a potential short-term objective.”

Gold was also supported by some soft February inflation data from the U.S., underlining the case for the Federal Reserve to maintain its current wait-and-see stance.

Speaking last Friday, Fed Chairman Jerome Powell justified the “wait-and-see approach” given that there was “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

Markets remain skeptical that the Fed could hike rates this year, particularly after the employment report suggested weak job creation in February. Fed fund futures suggest a 10% possibility that the next move in rates will be down.

The pause in policy tightening benefits gold as it lowers the opportunity cost of holding non-yielding bullion.

Palladium prices rose, reaffirming its standing as the world’s costliest metal.

The spot price of palladium rose by $1.90, or 0.1%, to 1,535.35 per ounce by 3:00 PM.

Trades in other Comex metals as of 3:00 PM ET (19:00 GMT):

Palladium futuresup $14.20, or 1%, at $1,496.20 per ounce.

Platinum futures up $18.40, or 2.3%, at $835.20 per ounce.

Silver futures up 19 cents, or 1.2%, at $15.46 per ounce.

Copper futures up 3 cents, or 1.1%, to $2.93 per pound.

 

SOURCE: Investing.com

Gold, Silver Gain On Lower USDX, Weak U.S. Inflation

(Kitco News) – Gold and silver prices are moderately higher in early-afternoon U.S. trading Tuesday, on some short covering by the shorter-term futures traders and perceived bargain hunting following recent pressure. A lower U.S. dollar index on this day and a mild U.S. inflation report are also friendly for the precious metals markets. Gold and silver bulls have regained some technical strength this week. April gold futures were last up $6.90 an ounce at $1,298.00. May Comex silver was last up $0.126 at $15.40 an ounce.

The key U.S. economic data point early this week was today’s consumer price index report for February, which came in at up 0.2% from January and was in line with market expectations. On an annual basis, CPI was up 1.5%–the lowest reading in 2.5 years. This continues a theme of low and non-problematic inflation in the major world economies, which is allowing the central banks to keep interest rates low. The gold and silver markets up-ticked just a bit following the report, which favored the monetary policy doves.

Asian and European stock markets were mixed today. U.S. stock indexes were firmer at midday. There is not much trader and investor anxiety in the world marketplace at present, which is bullish for world stock markets but bearish for the safe-haven metals.

British lawmakers vote late today on another Brexit plan offered by Prime Minister Theresa May. Despite some last-minute concessions from the European Union, the U.K. Parliament is expected to vote down May’s plan.

The other outside market today sees Nymex crude oil prices firmer and trading near $57.00 a barrel.

Live 24 hours gold chart [Kitco Inc.]

Technically, April gold futures prices closed near the session high today. The bulls have the overall near-term technical advantage. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,320.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at $1,275.00. First resistance is seen at last week’s high of $1,301.30 and then at $1,310.00. First support is seen at this week’s low of $1,290.60 and then at $1,285.60. Wyckoff’s Market Rating: 6.0

Live 24 hours silver chart [ Kitco Inc. ]

May silver futures prices closed near mid-range today. The silver bulls have regained the overall near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $15.75 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $14.75. First resistance is seen at today’s high of $15.49 and then at $15.545. Next support is seen at this week’s low of $15.225 and then at $15.00. Wyckoff’s Market Rating: 6.0.

May N.Y. copper closed up 275 points at 292.85 cents today. Prices closed near mid-range today. The copper bulls have the overall near-term technical advantage. Prices are in a 10-week-old uptrend on the daily bar chart. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at the February high of 297.75 cents. The next downside price objective for the bears is closing prices below solid technical support at 275.00 cents. First resistance is seen at today’s high of 295.70 cents and then at 297.75 cents. First support is seen at today’s low of 2.90.50 cents and then at last week’s low of 287.45 cents. Wyckoff’s Market Rating: 6.5.

SOURCE: Kitco

How low will the S&P 500 go? Buffett and Shiller know

Every trader’s secret wish is to be psychic. If we could only know in advance whether the market was going to go up or down.

Well, good luck trying to predict next year’s return—or even just tomorrow’s. But surprisingly, there are several recognized methods for projecting the S&P 500’sSPX, +0.30%  return in the next 7 to 15 years, and they’re pretty good.

Decade-length forecasts won’t help any day traders make big profits this week. But longer-term investors can benefit a lot from these forward-looking estimates. Whatever goal you may be saving money for—a kid’s college tuition or a financial-freedom day that may be 10 years in the future—you want the answer to two questions:

• Are we entering a “go-go decade,” such as 2009–2018, when most stocks grow up, up, up?

• Or is this the beginning of a “bummer decade,” such as 2000–2009, when stock markets around the world crashed twice, ending not far from where they started?

If the next 10 years look like a downer, dude, diversifying your portfolio into securities other than stocks may pay you big dividends.

Financial experts like Warren Buffett and Robert Shiller are creators of long-term projection methods with data that goes back more than half a century. It’s well known that Buffett is one of the world’s richest people, and that Shiller won a 2013 Nobel Prize in Economics partly for developing his forecasting formula. Whether or not these seers actually have crystal balls, things have worked out pretty well for them.

Whatever goes up must eventually come down

Stephen Jones, a financial and economic analyst who works in New York City, tracks the formulas that several market wizards have disclosed. He recently updated his numbers through Dec. 31, 2018, and shared them with me. Buffett, Shiller, and the other boldface names had nothing to do with Jones’s calculations. He crunched the financial celebrities’ formulas himself, based on their public statements.

The graph above doesn’t show the S&P 500’s price levels. Instead, it reveals how well the projection methods estimated the market’s 10-year rate of return in the past. The round markers on the right are the forecasts for the 10 years that lie ahead of us. All of the numbers for the S&P 500 include dividends but exclude the consumer-price index’s inflationary effect on stock prices:

• Shiller’s P/E10 predicts a 2.6% annualized real total return. Take today’s S&P 500 price and divide it by its companies’ average inflation-adjusted earnings over the past 10 years. This gives you a ratio that suggests whether the market is overpriced or underpriced. If you could buy one “share” of the S&P 500 index, your account would be worth around $2,700. After 10 years of 2.6% gains, you’d have $3,490. (Controversy alert: Various economists have proposed a number of improvements in the way Shiller’s ratio should be calculated.)

• Buffett’s MV/GDP says minus 2.0%. Divide the S&P 500’s market value by the U.S. gross domestic product. Buffett wasn’t the first person to suggest this metric, but he’s said on the record that it’s “probably the best single measure of where valuations stand.” If the index fell 2.0% annualized, your $2,700 would turn into $2,206. Not so great.

• Tobin’s “q” ratio indicates minus 0.5%. This metric divides the market value of all U.S. equities (not just the ones in the S&P 500) by the cost to replace all of the companies’ assets. It’s based on academic papers by economists James Tobin, a 1981 Nobel laureate, and William Brainard. This formula predicts that your S&P 500 account will drift slightly lower in real terms, not quite keeping up with inflation.

• Jones’s Composite says minus 4.1%. Jones uses Buffett’s formula but adjusts for demographic changes. For example, as America’s population ages, this reduces economic demand. The resulting Demographically and Market-Adjusted (DAMA) Composite has predicted the S&P 500’s 10-year returns more closely than any of the other formulas since 1964. Let’s hope he’s wrong. A 4.1% annualized loss would drive your $2,700 account down to $1,776 after 10 years. That would be a 34% decline, almost as bad as the “lost decade” of 2000 through 2009.

The predictions might seem far apart, but they aren’t. The forecasts are all much lower than the S&P 500’s annualized real total return of about 6% from 1964 through 2018.

Jones is the first to say that these formulas, including his own, aren’t guarantees and can’t be used to time the market. After all, the S&P 500 could go up for the next five years at a 1% real rate, before dropping 9% a year for the next five years. The initial rally, followed by a fear cycle, would suffice to reduce your account to $1,776. That’s not a prediction—nothing about the market happens in a straight line—but remember that the S&P 500 has crashed much harder than a 34% loss TWICE in the past two decades.

“The market’s return over the past 10 years,” Jones explains, “has outperformed all major forecasts from 10 years prior by more than any other 10-year period.” He attributes this to the unprecedented stimulation that the Federal Reserve pumped into the economy (and is now removing—watch out below). Markets tend to revert to their average performance over time, which is not nearly as much fun as it sounds.

If you can’t use these predictions to time the market, what good are they?

For long-term investors, the likelihood that the market is overpriced and will eventually pull back to a lower valuation should flash a bright yellow “caution” light. A disappointing decade is not the time to gamble your money on a 100% stock portfolio. Diversifying into other types of assets can prevent any one index—such as the S&P 500—from dragging down your performance.

Long-established strategies such as Lazy Portfolios, which MarketWatch has tracked for years, and the newer Muscular Portfolios, encompass numerous asset classes besides just U.S. stocks and bonds. Those diversifying assets include real-estate investment trusts, commodities, precious metals, and non-US stocks and bonds.

During the 2007–2009 bear market, the S&P 500 lost 56%, adjusted for dividends and inflation. In the same period, Vanguard’s long-term Treasury fundVUSTX, -0.34%  gained 18%, and iShares’ gold IAUF, +0.67%  actually rose 22%. No mater how bad the stock market may get, something else is always going up.

You are the captain of your own destiny, but you don’t have to go down with the ship when the S&P 500 hits the inevitable rocks. Diversify now.

Jones’s latest calculations aren’t publicly available yet, but you can read all about his methods in a Social Sciences Research Network white paper.

SOURCE: MarketWatch

Palladium – More Precious Than Gold!

In 1803, a bright and ambitious chemist disrupted the world by discovering a rare and lustrous silvery white metal. This man was W.H Wollaston, and he named this metal Palladium, after the asteroid of Pallas that was discovered two months prior to his discovery. Palladium has been used as a precious metal in jewelry since 1939 as an alternative to platinum in the alloys called “white gold”. Palladium-gold is more expensive than nickel-gold, and unlike nickel-gold, seldom causes an allergic reaction. Prior to 2004, the principal use of palladium in jewelry was the manufacture of white gold. In early 2004, when gold and platinum prices rose steeply, China began fabricating volumes of palladium jewelry, consuming 37 tonnes in 2005. And today, the data has been pointing to one certainty, this metal is about to become more precious than gold!

Palladium

Palladium’s current applications

Palladium has a fair number of functions. In the world of high fashion and jewelry, it competes with it’s more noble sibling, platinum. It is also used in the medical world for surgical tools. It is also used in the automotive industry for catalytic converters. Catalytic converters are used in petrol cars as part of its exhaust system. Harmful exhaust fumes are passed through a catalytic converter to make it safe and meet regulation requirements.

Sourcing for Palladium

Native palladium is rare.  It occurs alloyed with a little platinum and iridium in Colombia, Brazil, in the Ural Mountains and in South Africa. Palladium is one of the most abundant platinum metals and occurs in Earth’s crust at an abundance. Palladium also occurs alloyed with native platinum. Palladium is also associated with a number of gold, silver, copper and nickel ores. It is generally produced commercially as a by-product in the refining of copper and nickel ores. Russia, South Africa, Canada, and the United States were the world’s leading producers of palladium in the early 21st century.

Market for Palladium

The market for palladium turned heads this year when it outperformed gold. China is driving this rally up, and there’s no signs of it slowing down. Carmakers in China are increasing the use palladium in catalytic converters to meet the new Euro 6 regulations. As diesel cars fade away from the mainstream market, petrol cars which use catalytic converters extensively are set to rise. Hybrid cars, that leverage power between a petrol engine and electric engine, use palladium for its storage batteries.

Risk to Palladium

Palladium has been experiencing a deficit the last 7 to 8 years. This is expected to continue to grow until 2020. New mines are expected to come into operations in 2025. The biggest challenge to sourcing palladium is the lack of investment in its mining. As Russia and South Africa continues to dominate the mining of palladium, investors are still not confident to put their money into these mines.

Hybrid car demands are set to continue growing until 2025. The drive for storage batteries will continue to increase. As such, it is straightforward to deduce that palladium prices will continue to remain bullish for the next 5 years.

Summary/Conclusion

In summary, it is quite rare to be presented with an alternative metal-based investment against gold. Given the rally for gold since the tariff wars started, it could easily come off steam once President Trump and President Xi Jinping see eye-to-eye. Palladium, on the other hand, will seem to keep gathering steam as demand for hybrid cars increase and Euro 6 regulations come into play. Gold will still be a dominant metal as it has always been, but it’s good to have an alternative that can be relied upon. All that glitters may not just be gold, it could be palladium.

SOURCE: ValueWalk

 

Gold To Soar As Central Banks Try To Play God Again

A Fed interest rate policy reversal to rate cuts and QE is inevitable, as is a Gold price multiples higher from here. David explains…

by David Brady via Sprott Money News

My principal thesis for “the low” in Gold has been a Fed policy reversal to interest rate cuts and QE, causing the dollar to tank and Gold (and everything else) to soar. Nothing has changed in that regard.

What has changed is that the central banks are already turning the monetary spigots back on—all but the Fed. This morning the ECB announced new stimulus measures just two months after they supposedly tapered their QE program to zero. Think about that. They turned off the monetary spigots for a proverbial five minutes, German and EU economic data continue down the sinkhole along with inflation, and the ECB does a 180 back to QE and likely NIRP too (both of which clearly don’t work, but what else can they do?). This is the definition of a “Ponzi scheme”. Without increasing cash inflows, it collapses. That is the EU and global markets today.

What’s ahead for the EU and, indeed, the world: Japanification? A zombie global economy for decades? Or possibly rampant stagflation, where prices soar and the economy just drifts along on life support until it becomes obvious that QE was never a cure, but has become poison and needs to be stopped. At that point, the central banks are rendered powerless, the system collapses, and we get a global monetary reset. Gold and Silver soar beyond belief under such circumstances.

Back to the present. The ECB is printing again. The Public Bank of China, or PBOC, has already started too. They printed 5% of their GDP in new loans in January alone (when the S&P and global stock markets desperately needed a boost), truly massive credit creation. The BoJ never stopped printing. And finally, the Fed did a “verbal” 180, pausing rate hikes for now, but continuing to reduce its balance sheet. They are trying to repeat what they did in 2016 after the historic sell-off in January that year, to enable further rate hikes down the road.

 

Why? In order to provide ammunition to deal with the crisis already unfolding. Yes, raising rates so they can cut them later. Makes as much sense as paying someone to borrow your money, also known as negative interest rates. This is how desperate the central bankers have become to keep this Ponzi scheme going, but they can’t fight Mother Nature, the economy, and markets forever. Time is running out. All of which is why Gold and Silver and other hard assets are the new “TINA” (there is no alternative) assets for what is to come. China and Russia have known this since at least the 2008 financial crisis led by the U.S., anticipating the U.S. would have to print dollars en masse to pay for its deficits and debts, especially the massive unfunded liabilities coming due in a big way next year.

Until then, the Fed is trying to squeeze in another rate hike or two and reduce its balance sheet a little further. The other central banks are helping them out in the meantime by printing currency again and buying dollars, and using dollars to buy U.S. assets, mainly stocks, in my opinion. The “carry trade” on steroids. This pushes the S&P higher, the Fed’s primary mandate, and enables further rate hikes. The other central banks are also printing to support their own markets and maintain confidence in the system at large. The risk of a widespread loss of confidence in central bank policies is growing, as it becomes increasingly transparent that these policies do absolutely nothing for the economy except create more debt and raise asset prices.

All of this global money printing pushes the dollar higher, which could weigh on Gold in the short-term. However, neither the U.S. nor the global economy can tolerate a stronger dollar. We saw that in August when emerging market currencies across the globe were in crisis mode, as the dollar rose and the risk of default on their huge dollar-denominated debt rose dramatically. These included the Russian Ruble, Turkish Lira, Indian Rupee, Brazilian Real, Argentine Peso, Singapore Dollar, Malaysian Ringgit, Taiwan Dollar, Thai Baht, Indonesian Rupiah, South African Rand, Hungarian Forint, and the Polish Zloty, to name just a few.

The domino effect would take over from there. Such defaults would hit European Banks first, and then the contagion would spread globally as bank after bank fell under the weight of widespread debt defaults, including U.S. banks, especially the big multinationals like JP Morgan and Citibank.

This all would have an indirect but profoundly destabilizing effect on the United States. A more direct effect of a stronger dollar would be on the dollar value of foreign revenues and earnings for U.S. multinationals (hitting the U.S. stock market) and the risk of deflation for a country with a massive trade deficit as import prices collapse. Such a deflation would also risk the solvency of the United States, as deficits and debts soar in real terms while economic growth and tax revenues fall.

So what happened next? Hey, presto! The dollar fell. Notably, this was the same month Gold bottomed. Eight months later, are these emerging market countries in a superior position now to weather a stronger dollar? Hell, no!

Simply put, the central banks cannot control all of the markets all of the time. There are just too many holes to plug and unexpected side effects from doing one thing: having foreign central banks print to prop up their markets and the U.S.’ too,and causing other negative impacts such as a stronger dollar as a result.They are trying to defy the laws of nature, the markets, and have been doing so for a very long time, but ultimately, that’s impossible. Mother Nature always wins in the end and this global Ponzi scheme is clearly drawing closer and closer to collapse as the central banks become increasingly desperate in their words and actions.

In conclusion, the dollar is likely to rise as every other central bank prints their currency into oblivion, and this could weigh on Gold in the short-term, but the US and the world cannot stand a stronger dollar for very long. The Fed will be forced to do its own dirty work and prop up US stocks and bonds and sacrifice the dollar in the process. This means a Fed policy reversal to rate cuts and QE is inevitable, as is a Gold price multiples higher from here. It’s only a matter of time now: months, not years.