These last few weeks have brought some volatility to the precious metals sector due to vaccine headlines crossing the wires.
Even though scientific breakthrough gives us something to look forward to, it is important to remember that since March, the economy has experienced severe structural economic damage in debt markets alongside an astounding disconnect between wall-street and main-street.
It is unbelievable to think that so far in 2020, the stock market has risen $5.2 trillion while at the same time, 5 million people have been eliminated from the workforce.
In both Canada and the United States, stimulus checks are expected to come in early 2021.
In Ottawa, the Canadian government is looking to do a “pre-loaded stimulus” program in savings accounts.
In the United States, a bipartisan group of lawmakers announced a $908 billion stimulus plan.
Citizens need continued support during this very difficult time for many families all over the world. With all this newly created debt alongside the ongoing quantitative easing programs, our outlook is that central banks will continue to do whatever they need to do to keep REAL interest rates negative to make servicing this debt easier. Real rates and gold serve as a great indication of its price action:
In addition to on-going commentary and Q&A articles we will be doing during the week; we are pleased to announce a Gold Telegraph Weekly Rundown to go over some of the week’s biggest headlines. We will be doing this every Sunday moving forward.
– Gold Telegraph Team
U.S dollar Hits two-and-a-half-year low this week
While COVID cases, the S&P 500 and Bitcoin soaring, the US Dollar had yet another down week – bringing it to a two and a half year low. The issue is far from a simple lack of confidence in the US economy.
When the initial Coronavirus panic hit early this year, economies around the world synchronously saw volatility in local currencies and the stock market – leading to a found haven in the reserve currency.
Fast-forward to the present, the US has only restored 54.4% of the spring job losses and continues to miss employment expectations. Concomitant limitations on business and personal earning opportunities and increased speculation on a fiscal stimulus package are all contributing to the weakened greenback. Add in a natural inverse relationship between USD and US stock prices (which are recovering with meteoric leaps) and longer-dated U.S. Treasury yields starting to rise again – leading to increased hedging ratios on USD-denominated investments and it’s no surprise the greenback has sunk to where it currently sits.
Internationally, it will be interesting to watch whether central bank official interest rates and government bond yields remain stable, at low levels, continuing to pique investor appetite for risky assets, such as global equities, and away from the weakening reserve currency.
Central Banks became NET BUYERS of gold again in October
Central Banks were back to buying gold in October with global official gold reserves rising by 22.8t on a net basis. Q3 saw a sale of 12.1t from Central Banks after 232.6t purchased in the first two quarters combined. The October rise is largely attributed not too excessive purchases, they remained quite stable, but rather a reduction in sales.
Mongolia was a major contributor to the continued sale of gold reserves, while Uzbekistan, Turkey, UAE, Qatar India stood out as the main buyers (25t combined) according to the world gold council.
China has now MOVED PAST the USA as Europe’s #1 trade partner…
China has spent years investing in measures to open from its main business of manufacturing to find growth in both the service and financial industries, with the goal of creating better conditions for China-EU investment cooperation. A focus on aligning networks of production, innovation, investment, and finance have all paid off as China has surpassed the US and is now the EU’s largest source of imports, accounting for 21.9 percent of its total imports. While the People’s Republic and the EU saw growth in their trade relationship, in the first three quarters of 2020, the United States recorded a significant drop in both imports (-11.4%) and exports (-10.0%).
It seems clear that while COVID-19 originated in China, its economy has been able to rebound and recover much faster than the West. And historical political rifts between China and select European countries have been mitigated by new riffs between those countries and the US, specifically Donald Trump. All leading to perfect timing, primed infrastructure, and capitalization between the EU and China.
Global debt to hit $200 trillion
Official forecasts from S&P Global came out this week speculating that the global debt will reach $200T by the end of 2020. This would put our debt at 265% of global annual economic output. The jump comes as another economic downfall brought on by the global pandemic and expected increase in defaults from exhausted borrowing by governments, corporations, and households.
The firm went on to say they do not expect a financial crisis as a result of the growing debt – but rather a decline in debt in the coming years as we put the pandemic in our rear-view mirror.