Europe took competition to a new level last week in the global currency-devaluation olympiad. Nominating the politically-minded IMF chief Christine Lagarde rather than a blue-blooded financier to run the ECB is akin to making Trump chairman of the Federal Reserve. No longer can we pretend that the staid protocols of old-school banking still obtain in the financial realm. Instead, there is a strong whiff of desperation as Europe readies a last-ditch attempt to stimulate itself out of a liquidity trap with the ECB’s deposit rate already at minus 0.4%.
Gold rose to a two week high and was higher in most currencies today after Washington’s threat of tariffs on Mexico exacerbated fears of a global trade war and recession, which saw a ‘flight to quality’ and gains for safe haven gold.
Spot gold jumped 0.9% to $1,298.80 an ounce this morning, its highest since May 15. Gold bullion has risen over 1.2% this month and appears headed for its first monthly gain in four months. This is important from a technical perspective and the fundamentals of growing risk aversion and robust demand should lead to further gains in June.
European trading has seen a clear flight to quality after President Trump unexpectedly politicised tariffs by slapping 5% on all goods coming from Mexico.
The increasingly hopeless case of a U.S. and China trade deal looked even further away after China drew up an “Unreliable entities” list of foreign parties (presumably mostly U.S.) that harm Chinese firms.
Stocks are red across the board globally with the S&P 500 breaking down sharply below its 200 day moving average (DMA). 2776 is a key level and Wall Street and Wasshington will not want a close below this level. Market intervention is quite possible, if not likely.
A weekly close below the 200 day moving average (DMA) could lead to follow through selling on Monday which could get ugly given the economic backdrop.
Financial stocks are particularly under pressure including UBS and embattled Deutsche Bank with the latter posting new “all time” lows of around €6. A whiff of contagion is in the air.
US and German bond yields hitting recent lows indicate the Fed might be backed into a rate cut sooner than they have been guiding with an inverting yield curve being a good barometer of trouble ahead
The greenback has also benefited somewhat from the risk off trade, in the face of this, silver and particularly gold are holding up well despite the recent sell off.
$1,300/oz and $14.60/oz are the respective hurdles approaching for both. Weekly closes over these levels should see follow though buying and further gains.
How far down we go, nobody knows, but it makes sense to stay cautious and prepared.
Fasten your seat belts it could be a lively Friday afternoon and weekend…
By Alasdair Macleod – Re-Blogged From Gold Eagle
Introduction and summary
The monetary, financial and political weaknesses of the EU are about to be exposed by the forthcoming global credit crisis.
This article assumes the combination of end of credit cycle dynamics and the rise in trade protectionism in 1929 is a valid precedent for gauging the scale of a developing global credit crisis today, as described in my earlier article published here. Then, it was heavier tariffs coinciding with a less destabilising inflation cycle than we face today, a combination that saw stock markets collapse. Today, we have the additional factors of far greater monetary inflation, far higher levels of government debt, low savings coupled with record consumer borrowing, and unbacked fiat currencies likely to lose purchasing power instead of gold-backed currencies which increased their purchasing power.
Declining international trade has already become evident in only a few months, and prescient observers detect early signs of a rapidly developing global recession. In response, the ECB has announced it will target lending to non-financial businesses with its TLTRO-III programme from September onwards.
The explanation for the sudden halt in global economic growth is found in the coincidence of peak credit combining with trade protectionism. The history of economic downturns points to a rerun of the 1929-32 period, but with fiat currencies substituted for a gold standard. Government finances are in far worse shape today, and markets have yet to appreciate the consequences of just a moderate contraction in global trade. Between new issues and liquidation by foreigners, domestic buyers will need to absorb $2 trillion of US Treasuries in the coming year, so QE is bound to return with a vengeance, the last hurrah for fiat currencies. However, China and Russia have the means to escape this fate, assuming they have the gumption to do so.
It may be too early to say the world is entering a significant economic downturn, but even ardent bulls must admit to it as an increasing possibility. Financial analysts, both bovine and ursine, face a complex matrix of factors when judging the future effect of any downturn on currencies, and of the prospects for the dollar in particular.
Powell’s testimony before the Congress is behind us. The ECB meeting is ahead of us. Will Draghi support the gold prices after recent declines?
Gold Falls Below $1,300
Gold bulls might be disappointed. The upward trend apparently ended. As one can see in the chart below, gold fell below $1,300 on Friday.
Chart 1: Gold prices from March 1 to March 4, 2019
By John Rubino – Re-Blogged From Dollar Collapse
Are you sick of your gold just sitting there when it was supposed to have long since made you rich? Have you been fantasizing about a world in which your gold really does make you rich?
If so you’re in good – or at least numerous – company.
So let’s sketch out such a world.
Start by envisioning an America in which a handful of oligopolies have captured banking, media, healthcare and several other important industries, while a tiny group of super-rich neo-aristocrats control as much wealth as the 200 million least-rich citizens.
By John Mauldin – Re-Blogged From Gold Eagle
Someone asked recently how many times I had “crossed the pond” to Europe. I really don’t know. Certainly dozens of times. It’s been several times a year for as long as I remember.
That makes me an extremely unusual American. Most of us never visit Europe, except maybe for a rare dream vacation. And that’s okay because our own country is wonderful and has a lifetime of sights to see. But it does affect our perspective on the world.
Graphic: European Central Bank