Gold heads for first weekly gain in a month

 

Gold futures traded in a tight range Friday, aiming for their first weekly gain in a month in the wake of the Federal Reserve’s recent decision to raise interest rates, as expected.

February gold GCG8, +0.02%  was up 40 cents at $1,257.50 an ounce. It settled Thursday at $1,260.80, the highest most-active contract settlement since Dec. 6, according to FactSet data. The SPDR Gold Trust GLD, +0.14%  added 0.2%, while the VanEck Vectors Gold Miners ETF GDX, -0.14%  was up 0.4.

Gold futures were roughly 0.7% higher for the week in the wake of the Federal Reserve’s decision to raise U.S. interest rates, with the metal gaining on the view that 2018 will likely bring three more hikes, not four. Higher interest rates cut demand for the nonyielding bullion in favor of yield-bearing assets.

Read:Fed lifts interest rates but sticks to go-slow approach as Yellen era nears end

“Price action has been the opposite of the old adage ‘buy the rumor sell the news’ in the gold market this week as prices declined into the [Federal Open Market Committee] meeting, but then stabilized and rebounded after the Fed announced a largely ‘dovish rate hike’,” said Tyler Richey, co-editor of the Sevens Report.

“The gold market has been choppy this year, going through fits and starts of volatility but bottom line, gold remains trendless right now and prices remain very well contained in the middle of the 2017 trading range,” he said. “And until we see a more discernible trend develop in interest rates (which are also sideways) that broad, sideways price action is likely to continue for gold.”

Gold has gained around 9% so far this year, boosted largely by geopolitical uncertainty, although the metal racked up much of that gain early on and has shuffled in a narrow range that included a drop to five-month lows earlier this week.

Gold prices have climbed this year despite rising U.S. interest rates, a rally in global stock markets and a jump in cryptocurrency prices—and the yellow metal has plenty of reasons to stretch its gains into 2018, according to a report from the World Gold Council.

But early year gains have been trimmed and even with that pullback, there’s not yet a strong enough contrarian indicator to encourage fresh buying, argues Mark Hulbert, in his latest column for MarketWatch.

“The current sentiment is even bleaker than it looks on the surface, given that gold is lower today than in late October,” he wrote, citing sentiment he measures across commentary by short-term gold market timers.

On Friday, the ICE Dollar Index DXY, +0.28% which gauges the buck’s strength against a half-dozen rivals, rose 0.4% to 93.869 and remained nearly flat for the week. U.S. stocks were trading higher, with the Dow DJIA, +0.63%  and the S&P 500SPX, +0.96%  on track for a fourth week of gains. Gold typically moves inversely to the dollar and stocks, as investor appetite for riskier assets tends to lure investors away from the haven of gold.

Among other metals, March silver SIH8, +0.82% gained 0.7% to $16.045 an ounce. March copper HGH8, +1.99% added 1.7% to $3.124 a pound. January platinumPLF8, +1.00%  rose 0.3% to $884.10 an ounce, while March palladium PAH8, -1.45% fell 0.5% to $1,022.80 an ounce, easing back from prices that climbed this week to levels not seen since 2001.

 

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Empire State index slips for second month in December

 

The numbers: The Empire State manufacturing index fell slightly in December, to a reading of 18 from 19.6 in November, the New York Fed said Friday. Any reading above zero indicates improving conditions, though it’s the second drop in a row.

What happened: It really was more of the same — the new-orders index eased 1.2 points to 19.5, and the shipments index rose 4 points to a reading of 22.4. On the employment side, the number of employees fell 6.4 points to a reading of 5.1 and the average workweek edged up a reading of zero.

The big picture: Manufacturing has had a nice run of late, buoyed by strong overseas growth, a weaker dollar and the recovery in commodity prices, as well as the solid domestic economy. But optimism has tempered from October’s dizzying levels.

 

Market reaction: No major move off the Empire data, but helped by the global economic strength, the Dow Jones Industrial Average DJIA, +0.64%   has climbed 24% this year.

 

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These 3 factors will drive the British pound in 2018

The British pound in 2017 clawed back some of the ground lost after last year’s Brexit vote, but not without suffering some hiccups. Sterling’s performance in 2018 could look similar as Brexit negotiations continue, but at least strategists expect inflationary pressures to ease.

 

 

The pound’s GBPUSD, -0.8340%  sensitivity to headlines, including both actual progress and a lot of noise, relating to Britain’s exit from the European Union dominated this year, and is unlikely to subside in 2018.

Pressure on British Prime Minister Theresa May, whose government barely survived her decision to call a snap election earlier this year and has been beset by resignations and turmoil, appeared to ease following progress in negotiations last week. But some still see a risk for another round of snap elections in 2018 amid continued doubts over May’s ability to survive. Just this week, U.K. lawmakers voted to amend May’s Brexit blueprint.

There is potential for cable to take back all of its post-Brexit decline in the first quarter of next year, said Viraj Patel, strategist at ING, arguing that the potential for positive developments hasn’t been fully priced in. That would take the pound to $1.40 versus the dollar, while sending the euro EURGBP, +0.6500%  to £0.85.

 
 
 

 

Sterling last bought $1.3333, down from $1.3430 late Thursday in New York. For the year, the currency pair is up around 8%. In 2016, the pound fell 16.5% versus the dollar between June 23, the day of the Brexit vote, and the end of the year.

 

British companies are hoping to have an idea what the post-Brexit trade landscape could look like by March of next year, which may mark the start of another intense round of negotiations.

“The U.K. has suffered from low productivity growth for some years. This issue is likely to be accentuated by the fact that investment growth is being hindered by political uncertainty,” said Jane Foley, senior strategist at Rabobank.

And while negotiations between London and Brussels have progressed, one sticking point—namely what will happen to the border between the U.K.’s Northern Ireland and the Republic of Ireland, which is an EU member state—persists.

Inflation

Another big driver for sterling will be consumer price inflation. Proposing to leave the EU, caused its currency to fall and prices to rise, leaving the U.K. with an ailing economy and fast price growth—unique among its developed economy peers, which are struggling to make sense of the opposite scenario.

“Any reassessment next year that moves away from the stagflation story will be positive,” Patel said. “We’re not out of the woods yet, but the tail risk of a ‘no [Brexit] deal’ has gone away.”

In November, U.K. consumer prices rose by an annual 3.1%, its largest increase since March 2012.

“Although CPI should start to edge lower in the coming months as the impact of last year’s pound drop falls out of the year-on-year calculations, the impact of domestically generated inflation is expected to keep CPI well supported and potentially above the BOE’s 2% target through the forecast period,” Foley cautioned.

“Although Britain’s unemployment rate remains encouraging, sentiment could easily take a hit if wage growth fails to meet market estimations,” said Lukman Otunuga, research analyst at FXTM. Given how high U.K. inflation is already, sluggish wage growth would really hurt British consumers, he added. That in turn, spells potentially subdued overall 2018 growth.

Interest rates

High inflation pushed the BOE to hike rates in November, which marked the first such move in a decade. Since then, however, the central bank has been sitting tight, even after the steep November CPI reading.

Taking a close look at how the pound traded after the November inflation report, “there is a suspicion that the depreciation was based on investor expectations over November’s inflation figures having little impact on the BOE rate path,” Otunuga said.

“Of course, the above-target inflation doesn’t make the BOE’s job easy,” said Sireen Harajli, strategist at Mizuho. “Still, we think it will keep rates on hold.”

Indeed, many market participants expect inflationary pressure to ease somewhat in 2018, giving Bank of England Gov. Mark Carney and fellow policy makers a reason to leave rates unchanged.

Still, the U.K.’s surging inflation relative to peers such as the U.S., EU or Canada, which are all struggling with the opposite issue of particularly low inflation, could force the BOE’s hand in 2018 if accelerating CPI persists, market participants warned.

 

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Hunt for Asia’s next big currency trade lands on ringgit, yuan

Malaysia’s ringgit and China’s yuan are emerging as Asia’s most-promising currencies for fund managers as they look for the best place to put their money in the new year.

A rebound in exports, widening current-account surpluses for some nations and an ongoing global chase for yields are fueling optimism that regional currencies will extend their rally into 2018. A gauge of Asian currencies is up 5.5 percent this year, set for its best performance since 1998. South Korea’s won is leading spot gains, while the ringgit tops in terms of total returns.

“We expect the Asian economies to do well as the global recovery broadens out,” said Wilfred Wee, a Singapore-based fund manager at Investec Asset Management Ltd., which oversees $132 billion globally. “We can expect Asian currency strength to sustain into 2018.”

But there are risks too. While the Federal Reserve this week maintained its projections for three interest-rate increases in 2018, a more hawkish tilt could spoil the party for Asian exchange rates. A surprise jump in global inflation or a war on the Korean peninsula are other spoilers, say investors, who also favor Indonesia’s rupiah and the Indian rupee, while being less optimistic about Thailand’s baht and the won.

Here are the detailed comments on major Asian currencies:

Malaysian ringgit

This year has marked a turnaround for the ringgit, which has rebounded from a 19-year low on the back of surging oil prices and bets the central bank will tighten policy. With prospects for better exports and economic growth, the currency has delivered a total return of more than 13 percent.

  • Amundi Asset Management likes the ringgit due to Malaysia’s improved fundamentals, says Hakan Aksoy, senior portfolio manager for EM local currencies in London
  • For Investec, the ringgit is attractive as it’s undervalued and under-owned, and the central bank has turned hawkish due to robust growth, says Wee
  • Union Investment Privatfonds GmbH is more comfortable with the ringgit now than earlier because of higher crude prices, says Christian Wildmann, a Frankfurt-based senior portfolio manager

Chinese yuan

The offshore yuan is set to halt three years of losses as exports rise and manufacturing activity firms up. The PBOC’s move Thursday to boost market interest rates showcased authorities’ determination to continue with a deleveraging campaign that’s propelled bond yields. That bodes well for the yuan in 2018 as higher rates are seen luring investors.

  • China’s offshore yuan is attractive due to nation’s prospects of inclusion in global bond indexes and rising yields, according to Investec
  • Amundi likes to be long the onshore yuan against Thailand’s baht due to positive carry differential

Indian rupee

Having risen more than 5 percent, the rupee is on course for its first annual advance since 2010 as Indian stocks and bonds have attracted global funds on the promise of economic reforms and political stability.

  • Eaton Vance Corp. is long the rupee due to India’s high real rates, according to Eric Stein, co-director of global fixed income in Boston
  • Amundi is positive on the currency because of its higher carry
  • Union Investment remains “very comfortable” with the rupee from a multi-year perspective although it’s monitoring the slight weakening in India’s growth and fiscal position as well as the negative impact of higher oil prices on the current-account deficit
  • Investec is of the view that the rupee may struggle to outperform given that it’s a consensus favorite

Indonesian rupiah

Once part of Morgan Stanley’s “Fragile Five,” the rupiah has rallied due to a combination of high yields and an improving economic outlook. Buoyant agriculture prices are expected to add to tailwinds for the commodity-exporting nation, as optimism around President Joko Widodo’s reforms burnishes the rupiah’s appeal.

  • Eaton Vance is long the rupiah and Amundi is positive on the currency due to its higher carry
  • Union Investment remains comfortable with the rupiah on a multi-year horizon

South Korean won

South Korea’s won weathered bouts of bond outflows and multiple missile tests from North Korea to lead Asia with an 11 percent gain this year. Analysts expect the won to lose some ground heading into early 2018 with most of the positives, including higher domestic interest rates, seen as already being in the price.

  • Union Investment sees multiple obstacles to a stronger won next year, including an easing in demand for the nation’s tech exports and the fallout on investment and sentiment from the North Korean conflict
  • Eaton Vance has a short position on the won as a hedge should North Korea tensions worsen, even though it’s positive on the economy
  • Investec favors the won and thinks the currency would be stronger if not for geopolitical risks

Thai baht

With a 10 percent advance, the baht is the region’s second-best performer this year, thanks to Thailand’s current-account surplus, rising exports and bond inflows.

  • Amundi says the nation’s low yields don’t justify the risk of investment, especially given the steepening environment in developed markets
  • Eaton Vance, however, holds a long position on the baht as it finds the currency cheap

 

 

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Bitcoin futures rev up again, push past $17,500

 

U.S. bitcoin futures on Thursday pushed higher above $17,000 on a fourth full day of trading, with the spot price for the cryptocurrency was also on the rise.

Bitcoin futures expiring in January XBTF8, -1.08%  traded at $17,520, according to Cboe Global Markets Inc., a rise of 2.7% compared with Wednesday’s settlement of $17,055.

Spot prices for bitcoin BTCUSD, -1.62%  were at $16,803.89, a 3% gain, according to data from CoinDesk. The No. 1 digital currency tumbled briefly below $16,000 late Wednesday, before rebounding to push back above $16,500.

Futures trading for bitcoin has settled down since Sunday’s launch by the Cboe, which kicked off at $15,000 for the January contract. Based on that starting level, the futures contract is up about 17% early Thursday. Cboe rival CME Group Inc.CME, -0.45%  will begin its own bitcoin futures trading on Monday.

Bitcoin’s massive gains this year — up about 1,600% — have triggered huge interest in digital currencies and the companies that mine them. A fear-of-missing-out attitude has driven more money into cryptocurrencies, while on the other side, there have been bubble warnings and advice for investors to proceed cautiously.

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Yellen on bitcoin: Outgoing Federal Reserve Chairwoman Janet Yellen referred to bitcoin as a “highly speculative asset,” speaking at a press conference after the central bank raised its key interest rate on Wednesday. She said the digital currency has a “very small role” in the payment system, as it has no stable store of value nor is it legal tender.

“The Fed doesn’t really play any role, any regulatory role with respect to bitcoin, other than assuring that banking organizations that we do supervise are attentive that they are appropriately managing any interactions they have with participants in that market, and appropriately monitoring anti-money-laundering Bank Secrecy Act responsibilities that they have,” Yellen said.

Here are some cryptocurrencies to watch in 2018

ICO explosion in 2017: Another popular means of trying to cash in on the cryptocurrency excitement this year has been initial coin offerings, or ICOs — a fundraising method aimed at attracting investors looking for the next big crypto score, but without the regulatory hurdles.

Fresh data from Autonomous Research has found that this year, ICO fundraising topped $4 billion for the first time, a huge leap from $225 million in 2016.

Securities and Exchange Commission Chairman Jay Clayton offered his own warning to investors over cryptocurrencies and ICOs earlier this week, a day after the Wall Street regulator shut down a $15 million ICO.

“Your invested funds may quickly travel overseas without your knowledge. As a result, risks can be amplified, including the risk that market regulators, such as the SEC, may not be able to effectively pursue bad actors or recover funds,” said Clayton.

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Oil prices erase gains as IEA data show global supply at 1-year high

 

U.S. shale producers are undermining OPEC’s efforts to rebalance oil market, IEA says.

Oil prices erased earlier gains and dipped lower on Thursday after the International Energy Agency said global oil supply has jumped to a one-year high as U.S. shale producers roar back to life.

Futures had started the day in an upbeat trade after data on Wednesday showed U.S. inventories fell more than expected last week.

West Texas Intermediate crude for January delivery CLF8, -0.19%  traded 3 cents, or 0.1%, lower at $56.57 a barrel, coming off an intraday high of $56.93. Brent oil for February LCOG8, +0.45%  was up 4 cents, or 0.1%, at $62.48 a barrel, having traded as high as $63.14 earlier in the session.

The benchmarks started to give up gains after the IEA in its closely watched monthly oil report said global oil supplies rose by 170,000 barrels a day in November, undermining the OPEC-led cuts to rebalance the market. The Organization of the Petroleum Exporting Countries and a group of non-cartel countries led by Russia two weeks ago agreed to extend their output cuts until the end of 2018.

The IEA said in its report OPEC production declined for a fourth straight month in November, down 130,000 barrels a day due to lower output from Saudi Arabia, Angola and Venezuela as well as higher compliance with supply cuts.

However, the Paris-based agency said “2018 might not be quite so happy for OPEC producers” as supply growth could exceed demand growth by 200,000 barrels a day in the first half.

Oil prices had been higher earlier in the day after the U.S. Energy Information Administration on Wednesday showed domestic crude supplies fell by 5.1 million barrels last week. That beat the forecast for a decline of 4 million barrels. However, gasoline stockpiles rose more than forecast.

In other energy products on Thursday, gasoline RBF8, +1.37%  rose 0.4% to $1.65 a gallon, while heating oil HOF8, -0.41%  slipped 0.3% to $1.90 a gallon.

Natural gas NGF18, -1.73%  slumped 1.6% to $2.67 per million British thermal units.

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These companies will take a huge profit hit from lower tax rates

 

The table in the story has been corrected to reflect the net change in the deferred tax assets.

If a federal tax reform bill is signed into law, a reduction in the corporate tax rate — from 35% to as low as 20% — will force some companies to take a big writedown due to the forced remeasurement they’ll have to do of the deferred tax assets on their balance sheets.

For banks like Citigroup C, -0.08%  , which has the largest deferred tax asset balance of all public companies as of the end of 2016, regulatory capital could also be affected. The bank has been warning investors in its filings with the Securities and Exchange Commission of the possibility of a significant negative impact on its bottom line from lower rates.

Read:Citigroup likely to take $20 billion hit from Republicans’ tax plan

A MarketWatch story from last week reported on the significant profit hit, and potential capital infusion needed, for Fannie Mae FNMA, +0.08%   and Freddie MacFMCC, -0.95%   because of their large deferred tax balances. The deferred tax assets, currently worth about $45 billion combined, would be reduced to about $20 billion, according to an analyst estimate based on a corporate rate cut to 20% from 35%.

Read:Here’s what else tax reform means: another bailout of Fannie and Freddie

Other companies will take big hits because of deferred tax assets accumulated over the years and little or no reserves in place to mitigate the impact.

Deferred tax asset and liabilities are created by the increases and decrease in taxes payable or refundable for future years as a result of net operating loss or tax credit carryforwards and “temporary differences” between tax and financial statement income. Many of the companies that are currently profitable, like the big banks, General Motors, and American International Group, accumulated these tax credits and deductions as a result of multiyear big losses during the financial crisis that started in 2008.

The financial impact of the federal tax rate reduction will be lessened if a company has already taken a valuation allowance, and a profit hit, from adjusting its deferred tax assets. Companies make valuation allowances when the tax benefit from a portion of the deferred tax asset balance is “more likely than not” not going be realized. That happens most often when a company is experiencing chronic losses.

In conjunction with research firm Audit Analytics, MarketWatch analyzed data regarding companies’ deferred tax asset and liability balances as of the end of 2016.

Here are the 15 companies with largest deferred tax asset balances as of the end of 2016, net of any deferred tax liabilities, and an estimate of the amount of write-down they will have to take. The analysis assumed no change in balances from the end of 2016, and a federal rate reduction from 35% to 20%.

In some cases the deferred tax assets and liabilities consist of state, local or foreign deductions and credits that would not be affected by a cut in the U.S. federal tax rate but could be affected by proposed changes such as a one-time levy on the repatriation of profits earned outside the United States.

Company All numbers in millions Ticker symbol Gross deferred tax assets Valuation allowance Estimated profit hit
Citigroup C, -0.08% $49,690 0 $22,654
General Motors GM, -0.34% $39,964 ($4,644) $13,787
American Int’l Group AIG, -0.61% $30,177 ($2,831) $7,897
Bank of America BAC,+0.78% $29,488 ($1,117) $7,601
Fed Home Loan Bank $15,818 0 $7,087
Ford Motor F, -0.48% $20,780 ($909) $3,352
Lockheed Martin LMT,+0.35% $7,746 ($15) $3,339
IBM IBM,+0.59% $11,906 ($916) $1,627
Morgan Stanley MS, +0.63% $5,974 ($164) $2,054
Kinder Morgan KMI,+0.50% $4,740 ($184) $1,862
Capital One COF,+0.37% $6,050 ($179) $3,259
Hewlett Packard HPQ,-0.29% $11,044 ($2,650) $323
Union Electric UELMO,+5.38% $5,151 0 $1,967
Cisco Systems CSCO,-0.56% $5,831 ($244) $1,626
Goldman Sachs GS, +1.07% $5,337 ($115) $1,511

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Bitcoin futures retreat below $18,000, while bitcoin itself stays near $17,000

U.S. bitcoin futures early Tuesday were falling below the $18,000 level as their second full day of trading got underway, while the price of the cryptocurrency itself kept to its recent range.

Bitcoin futures expiring in January XBTF8, -2.24%  were changing hands at $17,690, down from the prior day’s settlement at $18,545, according to Cboe Global Market Inc.’s exchange.

The price of one bitcoin BTCUSD, -1.05%  recently was at $16,711, representing a gain for the day of about 0.1%, according to CoinDesk.

On Monday, bitcoin futures surged as high as $18,850, after exchange operator Cboe launched trading of the contracts on Sunday at 6 p.m. Eastern Time, at a debut level of $15,000. The sharp move higher set off trading halts on Sunday.

Bitcoin climbed to a new all-time high on Monday of just below $17,400 before easing. It first topped the $17,000 mark last week.

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“A wave of short sellers hasn’t hit the market, and we see firmer bitcoin futures and a new all-time high in the bitcoin price,” said Chris Weston, chief market strategist at IG, in a note.

 

Cboe rival CME Group Inc. will launch its own bitcoin futures next week, if all goes as planned.

“One suspects this coming Monday’s CME futures launch will attract a touch more liquidity, and that is exactly what the futures market needs right now,” Weston said.

Read more: All you need to know about trading bitcoin futures

And see: Brokers say bitcoin futures contracts ignore risks

The price of one bitcoin has surged about 150% in the past month, stretching its monster year-to-date gain to more than 1,600%.

 

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Bitcoin frenzy is not stealing demand from gold, Goldman Sachs argues

Goldman Sachs says commentators equating bitcoin to “digital gold” that’s swiping demand from the actual yellow metal are simply wrong.

The investment bank, in a Dec. 11 note to clients led by Jeffrey Currie and Michael Hunds, said many investors have been asking if the cryptocurrency is taking demand away from gold.

“We believe the answer is no,” they wrote.

Bitcoin’s rising profile got an additional boost as the Chicago Board Options Exchange CBOE, +0.92%   launched bitcoin futures XBTF8, -1.00%    on Sunday, with the first full day of trade on Monday. Cboe rival CME Group Inc. CME, +0.12%   plans to launch its own bitcoin futures next week. Bitcoin futures early Tuesday were falling below the $18,000 level as their second full day of trading got underway, while the price of the cryptocurrency itself kept to its recent range.

“The net effect is that bitcoin has demonstrated much higher volatility and lower liquidity/price discovery compared to gold,” Goldman said. “The market cap of bitcoin is circa $275 billion versus gold at $8.3 trillion. Even all of the cryptocurrencies combined have a market cap less than $500 billion.”

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Bitcoin BTCUSD, +0.14%    jumped above $17,300 on some desks Monday after starting the year around $1,000, for a more than 1,700% gain. The most popular crypto has jumped 150% in only the past three months. Gold GCF8, -0.65%   has gained about 10% so far this year.

 

The Goldman analysts laid out what they see as the three primary differences between the two assets.

First, the investor pools are “vastly different.” Gold investors are relatively protected by anti-money laundering and counter-terrorist financing regulations but it’s still unclear how cryptocurrencies could comply with these rules.

Second, there has been “no discernable outflow of gold” from related exchange-traded funds, including the popular SPDR Gold Shares GLD, -0.44% Goldman noted that gold-backed ETF holdings had recently hit their highest level since mid-2013.

Finally, the analysts said that the “market characteristics of gold and cryptocurrencies are vastly different.” Bitcoin has a mathematically certain total supply, and gold has a finite (but less certain) supply in the earth’s crust. But “they have very different market dynamics,” the analysts said. “The composition of demand between bitcoin and gold is the key difference. Bitcoin is attracting more speculative inflows.”

“While the lack of liquidity and increased volatility may keep bitcoin interesting, it’s unlikely to convince investors looking for the kind of diversification and hedging benefits which gold has proven to possess over its long history,” the analysts said.

 

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Four reasons why you shouldn’t count gold out just yet

This article was written by David Fickling of Bloomberg Gadfly. It appeared first on the Bloomberg Terminal.

Remember gold?

It seems like only six years ago the shiny metal was flavor of the month, hitting a record $1,900 a troy ounce while its backers prophesied the end of the fiat money system.

With bitcoin sucking up all the crazy in financial markets, gold looks to have lost its luster. The CBOE/Comex Gold Volatility Index, a rough proxy for the amount of fun and profit available for precious metal traders, touched a record low of 10.17 last month, from levels north of 37 back in 2011.

That may be overdue a change. Despite suffering its worst week since May last week, the outlook for gold could be stronger now than it has been for several months. Here’s why.

1. Interest rates

That may look like a typo, but it’s not. The received wisdom is that higher interest rates — like the U.S. Fed Funds rate hike expected Wednesday — are bad news for gold. That’s because tighter money tends to be accompanied by better bond yields and stronger earnings, highlighting commodities’ inability to produce income for investors.

The truth isn’t quite so simple. After all, spot gold was stuck around $1,060 an ounce two years ago when the U.S. Federal Reserve started lifting rates above their post-financial crisis level of 0.25 percent. At 100 basis points north of there, gold is trading around $1,248 an ounce.

Chart gold against U.S. 10-year Treasury yields and it looks distinctly like the metal tends to sell the rumor of rate rises, and buy the fact. Every time yields have peaked north of 2.5 percent over the past five years, gold has promptly rallied. Economists predict that yield barrier should be broken some time in the first quarter of 2018.

2. The seasons, they go round and round

As Gadfly has argued previously, gold exhibits a pronounced seasonality. January, February, July and August — the four months this year when the metal has rallied most strongly — had, on average, been the best months to buy gold over the previous 10 years.

That seems to relate to resurgent demand from bar, coin and ETF investors coinciding with the tail end of the Diwali-Christmas-Lunar New Year peak buying period for jewelry. Whatever the reason, it’s enough of a consistent pattern these days that it’s starting to become a self-fulfilling prophecy — traders’ beliefs have a way of driving their buy and sell orders, and ultimately the market.

3. What an unpleasant surprise

Gold is the downer at every economic party. When the good times are rolling, people would rather be punting their money on FAANGs or dragon-head stocks than a prehistoric metal that’s an emblem of miserliness. No wonder, with the global economy celebrating as it has been in 2017, bullion doesn’t have a dance partner.

Still, all parties must come to an end — and it’s worth reflecting on just how unexpectedly good things have been lately. Citigroup Inc.’s surprise index for data on major economies reached a reading of 49.5 last month, a level it hasn’t breached since 2010. Expectations eventually catch up to a run of positive surprises, leading to disappointment as consistently as hangovers follow too much celebratory drinking.

4. A bit of bad news

You didn’t think we’d make it through a whole column with only a passing reference to cryptocurrencies, did you?

Bitcoin’s wild gyrations could be the spark to set any of the above factors in motion. Given the similarities between the investment philosophies of gold bugs and bitcoin fanatics, it’s hard to escape the notion that the precious metal has been so somnolent precisely because so much of the hot money has been going into zeroes and ones.

 

It’s anyone’s guess when or why bitcoin fever will break, but at a time when the bosses of major brokerages are warning darkly of “a catastrophe in the cryptocurrency market,” it’s not impossible to imagine a disorderly retreat.

If that happens, many of the fiat-money brigade who’ve pumped up the value of digital currencies will switch quickly from bitcoin, to cash, to their perceived safe haven of gold. More sober investors also tend to cling to the metal in moments of panic such as Brexit and the election of Donald Trump.

Gold may be a barbarous relic — but relics are rarely more attractive to investors than when they’re trembling before the power of the market’s gods. Don’t count it out just yet.

 

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