Category Archives: silver-rounds

Balefire9/iStock via Getty ImagesGold is now in vogue among investors and mainstream financial media. The metal has captured much attention as it recently surged to a new all-time high of $2,488. It is trading at about $2,400 as of this writing, up 18% YTD. And it has gained 47% since bottoming at 1628 in October 2022. I have read many commentaries in financial media citing strong central bank buying as a key reason for gold’s surge and as a signal for more gains ahead. However, these developments made me skeptical. In my view, none of the articles considered central bank buying in the proper context. More specifically: How much have central banks bought relative to the total gold tradable market cap? How much have they bought relative to total trading volume? How useful has their buy/sell behavior been as an indicator of gold’s current and future price trend? In other words, are the central banks “smart money,” as many would have us believe? Answers to these questions took considerable research and calculations. Publicly available data are inconsistent. The data I mined (pun intended) surprised me. I had to check the numbers several times. Surprisingly, the best data I could find shows the thesis of central bank gold buying as a reason for the rally is in doubt, if not outright wrong. There is even evidence that central bank gold buying has served as a good contrarian indicator. Central Bank Gold Buying – The Numbers Do Not Explain the Rally Let’s begin with a look at central bank gold net purchases as a percentage of total tradable market cap. The table below depicts key metrics gleaned from the World Gold Council website, which I believe is the most authoritative publicly available source. Worldwide central banks added a net 2,229 tonnes, or 71,663,910 ounces to their gold reserves during 2022-2023 and the first five months of 2024. As an aside, Bullion Vault data shows a much lower number for net purchases, by about 50%. Therefore, the net purchase metrics below may be overstated. Author, World Gold Council, Kitco The data show that over the past two and a half year buying spree, central banks accumulated $172.293B, or 2.99% of the total tradable gold market cap of $5 trillion. It is hard to see how this would move the price needle much, especially given bank purchases were spread out over two and a half years. Another gauge is total net purchases relative to the total gold market. The chart below shows the distribution of all gold assets in the world. The total is approximately $12 trillion according to the World Gold Council. The central bank share of the total is about 17%. Their buying during the period equals 1.2% of the entire gold market. In terms of their own reserves, banks tacked on 7.4% of their total of approximately $2 trillion (at year-end 2022). That means the banks added about 3% per year to their total reserves during the past 29 months. Again, this is not a spectacular number when placed in this context. World Gold Council Central Bank Gold Buying Relative to World Market Liquidity Next, let’s look at central bank buying versus total trading volume. If central banks were buying large sums relative to what is available on major trading exchanges, it would drive up prices. The table below shows the relevant metrics. Author, World Gold Council, Tradegoldtrading.com During the last 29 months, central banks accumulated gold at an average of about $61B per year. That compares with annual average trading volume (using 2023 data of $162.63B per day) of about $46,512B or $46.5 trillion. Hence, central banks purchased only 0.13% of total annual liquidity. Another way to look at it is that during an average 12-months of one of the most aggressive buying sprees ever, central banks bought a little more than one-third of the daily world gold trading volume. These numbers surprised me. After more digging, I found the chart below. It shows gold is the second most liquid asset – behind the S&P 500 and ahead of the highly liquid U.S. T-bill market. It supports the idea that central bank buying has less impact on the market than we expect. World Gold Council Indeed, the World Gold Council states: The size of the market allows it to absorb large purchases and sales from both institutional investors and central banks without resulting in price distortions. And in stark contrast to many financial markets, gold’s liquidity has not dried up, even during times of financial stress, making it a much less volatile asset.” This further supports the idea that central bank transactions have less much impact on gold’s price than most financial media suggest. Central Banks Are Not Smart Money Now let’s turn to the question of whether one should follow central bank buying and selling to inform investment decisions. Many gold pundits frequently tell us that central banks are “smart money.” Yet, once again, the data tell a different story. The chart below shows the total world central bank net gold purchases versus the year-end gold price since 2002. Author, SD Bullion, World Gold Council Here are takeaways regarding how central banks fared with their buying and selling decisions: From 2002 through 2008, central banks were consistent net sellers of gold while the metal more than doubled from $343 to $865. Central banks proved to be a good contrarian indicator of gold’s direction. Furthermore, their selling failed to deter gold’s strong advance. In 2009, banks loaded up and added a net of 676 tonnes. Gold increased to $1,104 by year-end. Central banks were smart money. From 2010 through 2012, central banks added a cumulative 987 tonnes while gold went to $1,664 for a gain of $471. Central banks were smart money. From 2013 to 2015, the banks added a whopping 1,636 tonnes. They accelerated purchases at the top during 2015, adding 913 tonnes. Yet, gold dropped that year from $1,199 to $1,062. Central banks were a good contrarian indicator. Gold declined despite strong central bank buying. After gold bottomed in 2015, central banks had less enthusiasm, adding less than average, or 104 tonnes in 2016. Yet, by the end of 2017 gold advanced to $1,296. The banks added 523 tonnes that year, helping to fuel the advance. Yet gold was flat again in 2018 and ended the year at $1,282. Banks were not smart money. Central banks added 1,475 tonnes during 2018-2020, while gold went to $1,878 for a gain of 45%. This could have been a causative factor for the gains. The banks were smart money. From 2021 – May 2024 central banks added a whopping 2,679 tonnes. During that time, gold rallied to its current level of about $2,400. However, as shown above, the purchase volume represented a small percentage of the market. The banks were smart money. In the seven sub-periods we examined, central banks proved to be smart money in four cases. They were not smart money in three cases. in fact, the latter included a seven-year period and a three-year period when they were a contrarian indicator. Out of the twenty-two and half years examined, the central banks were on the correct side of the market for 12 years, neutral during one and wrong during 10. That is a little better than a coin flip, but hardly smart money. Further, the data suggests their buy and sell decisions had negligible or at least inconsistent effect on gold’s price. Astonishment and Problems Admittedly, I was astonished by these findings. I had to check my numbers several times. Almost everything I have read over many years supports the belief about central banks’ strong influence on the gold market. There is one exception. I credited Robert Prechter’s Socionomic Theory of Finance in the comments section of one of my earlier articles. Prechter called out central bank actions in the early 2000s as a contrarian indicator. How can it be that central banks have a negligible impact on the gold market? The data above might be wrong. It is very possible central banks have bought much more gold than they have admitted to. Most believe that Russia and China have not been honest with their reporting. To be sure, Bullion Vault noted: Many analysts believe China’s national gold bullion holdings are larger than the reported total, perhaps twice the size if you compare the country’s visible private-sector demand against its gold mining output and bullion imports. The excess supply must have gone somewhere, and the People’s Bank has in the past kept the changes in its gold holdings a secret, suddenly announcing huge increases in its gold reserves in 2009 and 2015.” Another possibility is that options and futures traders sometimes manipulate the market. There are prominent gold experts who fervently believe this. However, gold is a vote of no confidence for fiat currencies. Its success undermines the goals of central banks who want stable currencies. Therefore, if anything, central banks would be inclined to depress gold’s price rather than fuel its advance. It is also possible that I am missing something in my analysis. There are many smart readers on SA, so I welcome your insights! Why I Own Gold: An Effective Component of an All-Weather Portfolio Regardless of the actual numbers, I don’t own gold because central banks are accumulating it. Those who follow me know I utilize an all-weather portfolio approach. Gold is a core holding, with a 15% allocation in my portfolio. I have owned it for more than a decade and will continue to hold it for the long run. Previous SA articles, including my all-weather portfolio articles, provide more details. For those who want the highlights, here is a recap: Solid long-term returns. Since 2000 gold has returned 8.7% per year, outperforming the S&P 500’s return of 7.4%, per VanEck. Since 1971, after Nixon devalued the dollar, gold has returned 8.3% per year. Excellent portfolio diversification. Since January 2000, gold’s correlation is 0.046 and 0.447 with U.S. equities and Global Treasuries ex-US respectively, according to the World Gold Council’s calculator. An Ibbotson study regarding the benefits of precious metals diversification stated: “Based on the forward looking resampled efficient frontiers, asset allocations that include precious metals have better risk-adjusted performance (as measured by Sharpe ratio) than asset allocations without the precious metals. Investors can potentially improve the reward-to-risk ratio in conservative, moderate, and aggressive asset allocations by including precious metals with allocations of 7.1%, 12.5%, and 15.7%, respectively. These results suggest that including precious metals in an asset allocation may increase expected returns and reduce portfolio risk.” An effective currency and debt hedge. Over the past 30 years, the correlation between the U.S. dollar and gold was -0.65. Another study found a high correlation of 0.93 between gold and U.S. debt from 1982-2010. The Financial Times interviewed Alan Greenspan in 2014. They asked, “Do you think that gold is currently a good investment?” Greenspan replied: Yes, remember what we are looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Long-term prospects. In 2022 with gold at $1940, I presented why gold could reach $5,000 in three to six years. I cited the monetary stock as a factor that could justify a much higher gold price. I also showed the Dow to Gold ratio, another sentiment measure that favored gold for the longer-term. What Really Drives the Price of Gold – Sentiment A final comment before wrapping up. For those who haven’t read it, I discussed the fallacies of using fundamentals to explain or predict gold’s price movements in Where is Gold Going? Watch Sentiment, Not Fundamentals. The data here on Fed gold buying further supports this thesis. As a result, I will continue to watch sentiment via the Commitment of Traders (COT) report and Elliott Wave Theory. Conclusion Central bank gold buying doesn’t appear to be as impactful nor relevant as many believe. But there are other very good reasons to own gold as part of a well-diversified portfolio. But it has experienced long periods of stagnation and at times can be volatile. As such, patience is required. I look forward to your comments. Continue reading →

LilliDayIt’s a human shortcoming to favor simple explanations for the business cycle. The notion that reliability and timeliness can be forged in one indicator endures, but recent history has hammered this approach, reminds a new commentary from Axios. “Recession indicators don’t work like they used to,” the news site reports. “Many of them have been tripped, yet no big downturn has materialized. The quirks of the pandemic business cycle – driven by a rolling series of disruptions to supply and demand – are the likely culprit.” Among the indicators that have failed to provide timely signals of an approaching recession: the yield curve, the Leading Economic Index, and temporary help employment, which Axios notes “was big tell” in the past but has stumbled recently. It’s tempting to blame the after-effects of the pandemic for the false signals. To be fair, much has changed for the business cycle since covid upended the usual routine, and it would be naive to minimize this factor. But it’s also fair to observe that no one business-cycle indicator has ever been flawless. That’s always been true, and always will be. Forecasting, as the saying goes, is hard, especially about the future. Fortunately, there are techniques to minimize the noise, maximize the signal and boost the timeliness and reliability of recession analytics. It starts with a basic premise that’s been documented for decades in empirical analytics: combining modeling analytics enhances results. Regular readers of CapitalSpectator.com know that your editor is a big fan of ensemble methodologies for estimating real-time recession risk. As I wrote in 2016, “we should be wary of relying on market signals alone for estimating recession risk.” Eight years later, the same principle applies, and for a good reason: it works. Or, to be more accurate, it fails less often than the usual suspects. Granted, it’s impossible to develop a genuinely flawless methodology. Indeed, there’s a crucial tradeoff that must be recognized in recession analytics: timeliness vs. reliability. The two are in conflict with one another. Although there’s no one perfect answer for calibrating this relationship in modeling, ignoring this hard fact by relying on one, even a handful of indicators, is asking for trouble. In fact, one could argue that building a multi-factor recession model is more relevant and practical than ever. All the more reason that this core principle has long informed the methodology of weekly updates of The US Business Cycle Risk Report (now in its 10th year), a sister publication of CapitalSpectator.com. At a high level, the main focus is carefully curating a diversified set of indicators to estimate the current state of the economy. Using that foundation, a near-term forecast is updated weekly. The key principle: the estimates reflect a wide variety of indicators and models. The reasoning: it’s never clear which indicator or model will fail in real time–and, yes, something’s always failing. It’s the aviation equivalent of recognizing that if you’re flying across the Pacific, it’s well-advised not to rely on one engine. On that basis, the current state of the economy continues to favor expansion, based on the main indicator that aggregates a variety of signaling for The US Business Cycle Risk Report. In the current issue of the newsletter, the probability that an NBER-defined recession has started or is imminent is roughly 9%. Using a multi-factor set of proprietary business-cycle indicators to forecast the near-term outlook suggests that economic activity is stabilizing through August, albeit at a slow/sluggish pace. Note: the tipping points that separate expansion from recession for the indexes in the chart below are 50% (ETI) and 0% (EMI). Why limit the forward estimates to a month or two? Because looking out much further is guessing. It’s deeply flawed/naive to assume that it’s possible to model how the complexity of the US economy will involve much beyond the very near future. Indeed, the only thing more deeply flawed than relying on one indicator in recession analysis is forecasting six-month, a year, or longer. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

Alphabet (GOOG, GOOGL) stock slipped more than 4% on Wednesday as investors kept a close on the company’s increased AI spending while disappointing YouTube advertising revenue was also a pain point for investors after the Google parent’s latest quarterly release.Yahoo Finance’s Dan Howley reports: Google parent Alphabet (GOOG, GOOGL) reported its fiscal second quarter earnings after the bell on Tuesday, beating analysts’ estimates on the top and bottom lines as its cloud businesses continue to pick up steam, topping the $1 billion mark for operating profit for the first time.For the quarter, the company saw earnings per share of $1.89 on revenue of $84.7 billion. Analysts were anticipating earnings per share of $1.85 on revenue of $84.3 billion, according to data compiled by Bloomberg. That’s a jump from the same period last year of 31% and 14%, respectively, when the company reported earnings per share of $1.44 on revenue of $74.6 billion.Advertising revenue topped $64.6 billion versus analysts’ expectations of $64.5 billion, and up from $58.1 billion last year. YouTube ad revenue, however, fell short, with the segment bringing in $8.66 billion versus expectations of $8.95 billion.Google saw cloud revenue of $10.35 billion and operating income of $1.17 billion. That’s better than analyst expectations of $10.1 billion and operating income of $982.2 million and higher than the $8 billion in revenue and $395 million in operating income the company reported in Q2 2023.Alphabet shares are up 30% year to date. Shares of rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22% year to date, respectively. All three companies are pouring money into building out their generative AI capabilities, spending lavishly on data centers capable of powering the AI models they offer via their cloud service platforms.In the second quarter, Alphabet reported spending $2.2 billion building AI models across its DeepMind and Google Research organizations. That’s up from $1.1 billion in Q2 2023. When exactly AI starts to generate revenue for Google’s Cloud business, let alone its ad segment, is still up in the air.“It is still too early to count on AI benefits as most [companies] remain in pilot mode, and material AI [revenue] is more likely a 2025-26 event,” Jefferies analyst Brent Thill wrote in a recent client note ahead of Alphabet’s earnings announcement. Continue reading →

By Indradip GhoshBENGALURU (Reuters) – The Federal Reserve will cut interest rates just twice this year, in September and December, as resilient U.S. consumer demand warrants a cautious approach despite easing inflation, according to a growing majority of economists in a Reuters poll.Declining price pressures over the past few months and recent signs of labor market weakness gave several members of the policy-setting Federal Open Market Committee (FOMC) “greater confidence” inflation will return to the U.S. central bank’s 2% goal without a significant economic slowdown.Markets grabbed that opportunity to price in two to three rate reductions this year, lifting stocks by around 2% and pushing down yields on the 10-year Treasury note by more than 25 basis points this month. But economists have held on to expectations for just two cuts for the last four months, and are more convinced now.Stronger-than-expected retail sales in June suggest consumer spending remains resilient and, along with a consensus view from the poll that the jobless rate won’t rise much from the current 4.1%, argues for patience.While all 100 economists in the July 17-23 Reuters poll said the Fed will keep rates unchanged on July 31, more than 80% – 82 of 100 – forecast the first 25-basis-point cut would come in September, pushing the federal funds rate to the 5.00%-5.25% range. That was a stronger majority compared to the nearly two-thirds who said so last month.While 15 expected the first rate reduction to happen in November or December, only three said the Fed would wait until next year.”We expect a 25-basis-point reduction in the target range at the September and December FOMC meetings, barring a meaningful upside surprise in the inflation data,” wrote Jonathan Pingle, chief U.S. economist at UBS.”We suspect unexpectedly quite weak employment data would be needed to create the urgency to lower rates more than that this year.”Nearly three-quarters of economists – 73 of 100 – predicted two 25-basis-point cuts this year, more than the roughly 60% who took that view in the June survey. Seventy of the economists in the latest poll said the cuts would happen in September and December.While 16 expected one or no cut this year, 11 predicted more than two. Among 21 primary dealers polled, nearly 60%, or 12, expected the Fed to reduce rates twice in 2024.Much of the outlook will hinge on key data releases this week, including a reading of second-quarter gross domestic product (GDP) and personal consumption expenditures (PCE) price index data for June.While the U.S. economy is expected to have expanded at an annualized rate of 2.0% last quarter, faster than the 1.4% in the first quarter, PCE inflation – which the Fed targets at 2% – is expected to have declined only slightly to an annual 2.5% in June from 2.6% in May, a separate Reuters survey predicted.None of the measures of inflation – the consumer price index (CPI), core CPI, PCE and core PCE – were expected to reach 2% until at least 2026, according to median forecasts in the latest poll.Just over half of economists – 17 of 30 – said inflation for the rest of the year was more likely to be higher than what they forecasted rather than lower.”Inflation has been very difficult to forecast this year and has behaved unpredictably. Rents, for example, have been far more persistent than anyone expected,” said Chris Low, chief economist at FHN Financial.”As long as we have moderate growth, the Fed can be patient,” he said.The Fed will cut rates once in each quarter through 2025, taking the federal funds rate to the 3.75%-4.00% range by the end of 2025, according to median forecasts in the survey.The U.S. economy was forecast to expand 2.3% this year, faster than what Fed officials currently see as the non-inflationary growth rate of 1.8%. It will grow 1.7% and 2.0% in 2025 and 2026, respectively, according to the poll.(Other stories from the Reuters global economic poll)(Reporting by Indradip Ghosh; Polling by Milounee Purohit, Vijayalakshmi Srinivasan and Mumal Rathore; Editing by Ross Finley and Paul Simao) Continue reading →

(Bloomberg) — Chinese stocks suffered their biggest decline in six months as a lack of major policy support following the Third Plenum reinforced bearish sentiment.Most Read from BloombergThe onshore benchmark CSI 300 Index closed 2.1% lower, following a 0.7% drop in the previous session. The declines have now erased gains seen last week, when signs of purchases by the “national team” of state funds amid the twice-a-decade political gathering propped up equity gauges.The steep losses are likely to be a taste of what may come without state support in a market that has lost momentum amid China’s economic troubles and geopolitical risks. Investors had looked to the Third Plenum for a clearer policy roadmap to end the property crisis and revive consumption, but the details released so far have fallen short of expectations.The equity decline “may be driven by fading national team support that propped up CSI 300 during the Plenum,” said Bloomberg Intelligence strategist Marvin Chen.Combined turnover in eight exchange-traded funds known to be favored by the national team was lower than the past year’s daily average on Tuesday, suggesting that state funds likely remained on the sidelines for the day. The aggregate turnover in the cohort was 9.5 billion yuan, compared to nearly 40 billion yuan on Friday.Read: China National Team ETFs Saw Record Inflows Amid Plenum (1)China increased support for the economy with surprise interest-rate cuts Monday, but analysts say the impact will likely be limited to meaningfully bolster the economy. Data earlier this month showed China’s growth unexpectedly slowed to the worst pace in five quarters as consumer spending faltered.“Investors tend to wait until there is a clear improvement,” said Steven Leung, executive director at UOB Kay Hian Hong Kong. “There has been no negative news in the market these two days, just investors believe such 10-basis point cut is not enough to trigger a turnaround in sentiment.”In Hong Kong, the Hang Seng China Enterprises Index fell 1%.–With assistance from Winnie Hsu and April Ma.(Updates with additional comment, ETF turnover data.)Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

cemagraphicsS&P 500 (SPX) investors were rattled in the trading week ending Friday, 19 July 2024. The index dropped two percent to close the week at 5,505.00. That decline was triggered by the Biden-Harris administration’s announcement on Wednesday, 17 July 2024 that it was planning to expand its anti-free trade restrictions against China. The new sanctions would negatively affect U.S. advanced computer chip manufacturers, as well as Japanese and Dutch chipmakers that do large volumes of business with China. The announcement sent the stock prices of U.S. chipmakers plunging, as the tech-heavy Nasdaq 100 index experienced its worst day since 2022, going on to lose 4.3% by the end of the week. The third-largest company in the S&P 500, AI chipmaker Nvidia (NVDA), lost $244 billion (8.75%) of its total value from the previous week as it dropped to a market capitalization of $2.9 trillion. Coincidentally, the size of that loss is about $1 billion less than the entire market cap of Advanced Micro Devices (AMD) after it shrank by 16.5% from its previous week’s market valuation. The dividend futures-based model’s alternative future chart shows what appears to be a new Lévy flight event, in which investors have shifted their investment time horizon from the current quarter of 2024-Q3 to the more distant future quarter of 2025-Q2, which may coincide with the timing of when the new export rules may take effect. Trading during the week showed little sign of any impact from the Saturday, 13 July 2024 assassination attempt against former U.S. President Donald Trump. The change in stock prices for the S&P 500 on Monday, 15 July 2024 fell well below the threshold of a 2% change from the previous trading day’s close that would qualify as interesting. With corporate earnings season getting underway, it’s quite possible that the random onset of new information it provides may soon prompt investors to shift their focus back to the current quarter. Or not. It depends on what new information comes out in the weeks ahead. Speaking of which, here are the week’s market-moving headlines. Monday, 15 July 2024 Signs and portents for the U.S. economy: Fed officials say U.S. inflation is heading lower to their 2% target: Bigger trouble, stimulus, bailouts developing in China: Nasdaq, S&P, Dow end higher on first trading day since assassination attempt on Trump Tuesday, 16 July 2024 Signs and portents for the U.S. economy: IMF says Fed officials shouldn’t rush to cut U.S. short term interest rates: Bigger stimulus, bailouts developing in China: BOJ, JapanGov officials secretly involved in propping up Japan’s currency, letting failing businesses finally go under: Possible growth signs developing in Eurozone: Dow jumps more than 700 points on UnitedHealth boost; rotation into small-caps continue Wednesday, 17 July 2024 Signs and portents for the U.S. economy: Fed officials “optimistic” inflation will drop to their 2% target, thinking about cutting rates: Bigger trouble, stimulus developing in China: Global chip sell-off slams Nasdaq, which notches worst day since 2022; Dow tops 41K Thursday, 18 July 2024 Signs and portents for the U.S. economy: Fed officials say they’re not okay yet with inflation, pitch new way for banks to tap into bailout money: Bigger trouble, stimulus developing in China: BOJ officials seeking ways to keep stimulus alive: ECB officials choose to sit on hands, will think about cutting rates later: Nasdaq, S&P slip, Dow sheds 500 points as tech rotation intensifies; Netflix in focus Friday, 19 July 2024 Signs and portents for the U.S. economy: Fed officials looking forward to getting inconclusive data: Bigger trouble, stimulus developing in China: BOJ officials to hold rates steady despite inflation pressure: ECB officials thinking about cutting Eurozone interest rates after passing on cuts this month: Wall Street posts worst week in three months; focus turns to upcoming earnings deluge The CME Group’s FedWatch Tool forecast is mostly unchanged this week. It continues to anticipate the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3), at which time, the Fed is expected to start a series of 0.25% rate cuts that will occur at 6- to-12-week intervals at least into mid-2025. The Atlanta Fed’s GDPNow tool’s forecast of the annualized real GDP growth rate during 2024-Q2 continued rising to +2.7% from the +2.0% growth projected a week earlier. When the BEA’s official first estimate of GDP in 2024-Q2 is released near the near of July 2024, the GDPNow tool will shift to start forecasting 2024-Q3’s real GDP growth rate. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

(Reuters) – U.S. stock index futures climbed on Monday as investors assessed the chances of a win by candidate Donald Trump in the November elections after President Joe Biden opted out of the race.Biden announced he was exiting the race on Sunday, and endorsed Vice President Kamala Harris for the Democratic ticket.Megacap stocks were up premarket, with Meta Platforms, Alphabet and Apple up between 0.5% and 0.8%, boosting the Nasdaq and S&P 500 futures.At 4:17 a.m. ET, Dow e-minis were up 54 points, or 0.13%, S&P 500 e-minis were up 18 points, or 0.32%, and Nasdaq 100 e-minis were up 102.5 points, or 0.52%.Shares of Trump-linked stocks such as Trump Media & Technology Group and software firm Phunware rose 2.8% and 1.4%, respectively.Most U.S. Treasury yields, including the 10-year one, were down as Biden ended his reelection campaign after pressure from fellow Democrats who lost faith in his mental acuity and ability to beat Trump.Biden’s exit from the presidential race could prompt investors to unwind trades betting that a Republican victory would increase U.S. fiscal and inflationary pressures, while some analysts said markets could benefit from an increased chance of divided government under the next administration.”Donald Trump is still the solid favorite to win the presidential election, but betting markets suggest he has a slightly lower probability of beating Harris rather than Biden,” said Paul Ashworth, chief North America economist at Capital Economics.”Harris will have a real chance to sell herself to the American public in the second presidential debate, currently scheduled for Sept. 10, although the Trump campaign could withdraw, not wanting to go toe-to-toe with the ex-attorney.”Investors are bracing for high volatility this week, with a deluge of quarterly earnings on deck, including from two of the so-called Magnificent Seven – Google parent Alphabet and Tesla – to gauge the sustainability of the recent run-up in the top-tier high-momentum stocks.Focus will also be on major data throughout the week including Personal Consumption Expenditures (PCE) price index data – the Federal Reserve’s preferred inflation gauge, durable goods and second-quarter GDP for clues on the U.S. central bank’s monetary policy trajectory.Traders have broadly priced in a 25-basis-point rate cut by September and two cuts by the year-end, as per LSEG and CME’s FedWatch data.Both the Nasdaq and the S&P 500 logged their steepest weekly declines since mid-April, with investors rotating out of expensive tech stocks to underperforming areas in the market, helping the small-cap Russell 2000 index post its second straight weekly gain.Among other single movers, Nvidia rose 1.3% after Reuters reported the AI chip leader is working on a version of its new flagship AI chips for the China market that would be compatible with current U.S. export controls.Shares of Bank of America lost 1.5% after Berkshire Hathaway sold about 33.9 million shares of the lender for around $1.48 billion over multiple transactions last week.(Reporting by Shubham Batra and Ankika Biswas in Bengaluru; Editing by Sherry Jacob-Phillips) Continue reading →

EC_HallexEquities have pulled back this week as rising realized and implied volatility have increased implied correlations. On July 12, the 1-month implied correlation index reached historic lows. Since then, the implied correlations have risen sharply but are still low by historical standards and are likely to rise more as we move through earnings season, and implied volatility levels rise as we move into the Presidential election. The equity market stretched itself too thin in too many places, and it didn’t take much for the trends to snap. Realized volatility fell too low, and it took a little movement in the equity market to cause this all to start to unwind. Volatility Rising As noted back on June 27, realized volatility levels were relatively low, and the ability for the S&P 500 (SP500) to continue to see small gains over a protracted period seemed unlikely. 30-day realized volatility hit a low of 6.97 on July 9 and 7.01 on July 12. The rule of 16 suggested that the S&P 500 could not rise more than 0.44 bps per day or risk realized volatility starting to climb. That was working fine, but that was right around the realized volatility bottomed because a nearly 4% rally between June 28 and July 16 started pushing realized volatility higher. Bloomberg The rise in realized volatility became a bigger problem when implied volatility also started rising, with one-month at-the-money implied volatility rising from around 10.10 to 12.5 from July 12 to July 18. This type of movement in implied volatility, at a time when the volatility dispersion trade was in full force, doesn’t work particularly well. Bloomberg Implied Correlations Rising Implied correlations increase when the implied volatility for single stocks and the S&P 500 rises simultaneously, which has been happening for the last few days. Bloomberg The issue is that next week’s earnings season is in full view, with Alphabet (GOOG) (GOOGL) and Tesla (TSLA) reporting results. Once those companies report results, implied volatility for those stocks will crash, as they always do post results. This means that even if implied volatility in the S&P 500 index comes down, implied correlations may not, because falling implied volatility in stocks and the S&P 500 index means implied volatility is becoming more correlated. The stock market is in a tough spot currently because when implied correlations start to rise, it typically follows an equity market that is moving lower, which is precisely what is happening now. Bloomberg Problems The same event happened last year, and it led to the index declining by around 10%. Now, this year is different, with a new set of problems. The biggest concern is that the S&P 500 trades at a much higher valuation. In July 2023, the S&P 500 peaked at 19 times 2024 earnings estimates; this year, it is trading at 20.0 times 2025 earnings estimates. So stocks are pricier on a 1-year forward basis. Bloomberg Additionally, it is an election year, and we typically see higher implied volatility overall in an election year. This year’s S&P VIX Index (VIX) has been tracking lower than the presidential election years, starting in 1996 and continuing through 2020, excluding 2008. That has changed some with the recent move higher, but seasonally, it would suggest that implied volatility is likely to move higher between now and the election. Bloomberg This probably means that over the coming months, we will likely see realized and implied volatility continue to move higher, pushing implied correlations higher, which will most likely send the S&P 500 lower. Because mechanically, that is how this trade typically works. It appears to be another instance of flying too close to the sun; now, as the wings melt, gravity seems poised to take over. Continue reading →

Daniel GrizeljPolitical and geopolitical risks are escalating, challenging developed markets and creating potential opportunities for emerging markets debt investors. The VanEck Emerging Markets Bond Fund (EMBAX) gained 0.15% in June, compared to a 1.11% loss for its benchmark, the 50% J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Global Diversified and 50% J.P. Morgan Emerging Markets Bond Index (EMBI). Year to date, the Fund is up 0.55%, compared to -0.72% for its benchmark (and compared to global developed market (DM) bonds, as measured by the Bloomberg Global Aggregate Index which was down 3.3% and U.S. 10-year Treasuries which fell by 2.0%). The decades-old story of emerging markets (EM) bonds outperforming DM continued in the first half of the year. During June, the Fund increased local currency exposure in Mexico. Initially, the Fund had a significant underweight in Mexico’s local currency, but established a long position after the market was crushed by the country’s June election outcome. The Fund was also significantly underweight Brazil local, which also fell sharply in June. We are currently exploring a potential tactical long position in Brazil local currency debt. We continue to favor duration as well as selected emerging markets currencies (EMFX), now including many of the high-betas (South Africa, Colombia, Hungary, Chile) following their weakness (Mexico, Brazil). Carry is 7.4%, yield to worst is 8.9%, duration is 6.8 and local makes up around 53% of exposure. Exhibit 1 shows EM bonds continued outperformance of DM bonds in 2024 as well as over the past 7 years (in earlier pieces we take these tables back decades and get the same result, and we’ve done volatility-adjusted research pieces, too, of course). The exhibit also highlights that an active approach like ours can boost returns over that of the EM benchmark (which has consistently beaten DM bonds). Exhibit 1 – EM Continues to Outshine DM Bonds As of June 30, 2024 1H’24 2023 2022 2021 2020 2019 2018 2017 7 Years VanEck Emerging Markets Bond Fund I 0.55 10.97 -7.22 -4.30 11.60 13.10 -6.21 11.96 2.92 50%JPM GBI-EM GD and 50%JPM EMBI GD -0.72 11.92 -14.75 -5.32 4.02 14.31 -5.15 12.74 0.75 Bloomberg Global Aggregate TR USD -3.16 5.72 -16.25 -4.71 9.20 6.84 -1.20 7.39 -0.45 ICE BofA Gbl Brd Mkt TR USD -3.32 5.56 -16.87 -5.24 8.94 6.85 -1.09 6.95 -0.72 FTSE Treasury Benchmark 10 Yr USD -1.99 3.54 -16.65 -3.51 10.37 8.85 -0.02 2.13 -0.28 Click to enlarge Average Annual Total Returns* (%) (In USD) Month End as of June 30, 2024 1 MO 3 MO YTD 1 YR 3 YR 5 YR 10 YR Class A: NAV (Inception 07/09/12) 0.26 0.52 0.22 4.94 -0.76 2.28 0.88 Class A: Maximum 5.75% load -5.51 -5.26 -5.54 -1.10 -2.70 1.08 0.29 Class I: NAV (Inception 07/09/12) 0.43 0.58 0.55 5.26 -0.40 2.60 1.21 Class Y: NAV (Inception 07/09/12) 0.19 0.45 0.40 5.03 -0.51 2.51 1.12 50% GBI-EM/50% EMBI -0.23 -0.66 -0.72 4.91 -2.88 -0.61 0.91 Click to enlarge * Returns less than one year are not annualized. Expenses: Class A: Gross 2.55%, Net 1.22%; Class I: Gross 2.51%, Net 0.87%; Class Y: Gross 2.91%, Net 0.97%. Expenses are capped contractually until 05/01/24 at 1.25% for Class A, 0.95% for Class I, 1.00% for Class Y. Caps excluding acquired fund fees and expenses, interest, trading, dividends, and interest payments of securities sold short, taxes, and extraordinary expenses. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended. Click to enlarge The “Net Asset Value” (NAV) of a Fund is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF’s intraday trading value. Investors should not expect to buy or sell shares at NAV. U.S. political risk is beginning to drive U.S. rates, whereas EM always pays a risk premium for perceived political risk. The U.S. yield curve steepened after a recent boost to former President Trump’s re-election prospects. The important observation is that political and policy risks are continuing to drive asset prices in the developed markets, to now including the U.S. Also, we believe this recent bear steepening reaction is not correct. This bear steepening reaction to former President Trump’s improved election prospects is supposed to be due to likely fiscal stimulus or heightened concern. We worry that too much of market participants’ reactions are not focused purely on policy. Let’s look only at economic policy, positing trade, fiscal, monetary, and structural policy as the key elements. We “table” it out below, as we remain stunned by how unwilling many market participants are to engage with political facts, whether welcomed or not. Our conclusion is that on trade, fiscal, and monetary policy, both Trump and President Biden are equally “market friendly” (or unfriendly), with Trump maybe having an edge, (but we rate the difference ‘Meh’). Structural policy (i.e., taxation and regulation) is where the key differences are, with a Trump de-regulation effort obviously holding the prospect of boosting productivity and growth. And, supply-side economic thinking would also note that higher growth is the easier answer to any fiscal issues, maybe upgrading Trump’s grade. The big problem is – so what if this is true? We won’t list the ongoing risks as we head to U.S. elections in November, but we think the market needs to actually get through all of these before it looks dispassionately at policy…and we agree, it’s too early to look through the election itself. So, if the politics are still up in the air and too far away, what does that leave us with? It leaves us with data-dependency. And the data are clearly weakening, as Fed Chair Powell noted during his Sintra comments in early July. So, we’ll continue to defer to the data, which we think will have the Fed cutting in September or November. But we’ll be respectful of price action, as there are clearly binary views on politics at least, if not on policy. What happens after that (likely recession fears and fiscal fears as a result), is still too early for the market to discount, in our view. One step at a time, but we are not covering our eyes. Exhibit 2 – Economic Policy Over Politics: Trump or Biden “Market Friendly”? Biden or Trump the “Market Friendly” Winner? Comment/Implication Trade Policy Meh Who can be more anti-China is the new political game Fiscal Policy Meh/Trump Trump’s fiscal boost was during Covid, Biden’s during post-Covid expansion, arguably making Trump better on Fiscal Monetary Policy Meh/Trump Biden’s Fed appointments have not been inflation hawks Structural Policy Trump De-regulation and tax cuts boost productivity/growth and encourage capital inflows…but this is after an uncertain election and quarters away Click to enlarge Political risks in DM are bigger than those in EM. French snap elections raise the prospect of a divided government that will likely resurrect fiscal concerns to a highly indebted sovereign in a eurozone currency union that escaped its crises about a decade ago without fixing its core deficiencies. Comments from Germany’s finance minister questioning potential ECB support for the French bond market underscore the risks in France. For what it’s worth, your author is French-born and has worked as a security-cleared U.S. official in Paris, during the country’s last cohabitation government (the only claim is of comfort and experience, not certitude). That DM situation is more fraught than hyped political risk in Mexico and South Africa, in our view. Probably self-evidently. Just to get one basic economic fact out of the way – Mexico and South Africa have floating exchange rates with independent central banks, and most of their debt is in their own currency. That can’t be said of France is basic, so please don’t forget it. (And don’t forget that the currency union is still not backed by a fiscal or financial union.) A floating exchange-rate absorbs these problems, and recently looks like it did so in Mexico (where we owned none, but bought after the natural and healthy financial market reaction). This is not an existential moment for Mexico, where the incoming government has already committed to orthodox fiscal targets and appointed an excellent finance minister. Mexico was just crowded and mispriced, but it’s not on the edge of an abyss. In South Africa the story is easier. Financial news made the initial headline the ANC’s loss of its 50% majority, when in reality market professionals were only debating a range of 39%-41%. Anyway, the reality was always going to be a coalition government, and the market got its dream outcome of an ANC alliance (through a Government of National Unity) with the very market-friendly DA. This is simply a good outcome (whatever the country’s longer-term prospects). The story is easier because the South African rand is actually up against the US Dollar year to date. Exhibit 3 – France: Another DM to Worry About That Isn’t Japan or U.S. Source: Bloomberg. As of July 3, 2024. Geopolitical risks continue, challenging DM but creating opportunities for EM. Ongoing supply risks support commodity prices. And central banks continue to diversify their reserve assets to include safe EMs with high real rates, sustainable fiscal, and no sanctions risk (central banks aren’t only replacing U.S. treasuries with gold). None of this is new. We will repeat two things. First, the correct lens for the two hot geopolitical conflicts in Europe is NATO vs. Russia (not Ukraine vs. Russia) and Israel vs. Iran vs. Turkey (not Israel vs. Hamas or Hezbollah); you have to look at the right “thing”, and these “things” are escalating. Second, an “obvious to us” scenario that seems to get no attention is that in the NATO vs. Russia conflict, Odessa is now likely “in play”. Given the absence of any peaceful solutions (the Swiss peace conference and following G7 meeting were about broadening sanctions against those with links to Russia), Russia is likely to table its latest offer of freezing the current conflict and resume its grind westward. This will likely remind markets of geopolitical risks, particularly given the importance of Odessa to grain exports (Odessa is Ukraine’s main port along with Mykolaiv. Just look at Odessa on the map below. We think an Odessa that escapes the conflict is likely faded. Exhibit 4 – Odessa Exposure Types and Significant Changes The changes to our top positions are summarized below. Our largest positions in June were South Africa, Thailand, China, Indonesia, and Poland: We increased our local currency exposure in Poland and Hungary. Poland remains the cleanest disinflation and policy story in Central Europe with potential growth upside. These factors improved the policy and economic test scores for the country. Hungary’s central bank is slowing the pace of rate cuts, while Europe’s growth outlook is improving relative to the U.S. In terms of our investment process, this strengthened Hungary’s policy and technical test scores. We also increased our local currency exposure in Mexico and South Africa, and hard currency sovereign exposure in South Africa. The market’s initial interpretation of the election results was extremely negative. This view was challenged by the subsequent moves of President-elect Sheinbaum, including the new cabinet’s technocratic lineup and Sheinbaum’s commitment to sharp fiscal consolidation. Further, given that the pre-election positioning was predominantly long, Mexico’s local rates and the currency sold off a lot after the elections significantly improving valuations. In terms of our investment process, this improved the policy and technical test scores for the country. South Africa’s post-election journey was somewhat similar, with the market taking some time to warm up to the idea of the government of national unity (and the continuation of reforms and fiscal discipline). Once this happened, local rates and the currency staged a rally, explaining a big part of the increase in our exposure. These developments improved South Africa’s policy test scores. Finally, we increased our hard currency sovereign exposure in Qatar, the United Arab Emirates, and Saudi Arabia. The key argument here is that longer duration should do better with the softening U.S. growth outlook. In terms of our investment process, this improved the technical test score for these countries. We reduced our local currency exposure in Brazil and Chile, and hard currency sovereign exposure in Argentina. The key concern in Brazil is growing uncertainty about the pace of fiscal consolidation and the new governor of the central bank, who might be more inclined to follow President Lula’s pro-growth policy “suggestions”. This resulted in the worsening policy test score for the country. Chile might be affected by China’s slow recovery progress and limited policy follow-through after big initial statements, which poses risks to copper prices. Further, the narrowing policy differential with the U.S. if the central bank continues to cut rates can put more pressure on the currency. In terms of our investment process, this worsened the policy and technical test scores for the country. We took profits in Argentina, as the policy momentum is stalling – especially the approval of the watered-down omnibus bill and the central bank’s failure to capitalize on good harvest and boost international reserves. These factors worsened the policy test score for Argentina. We also reduced our hard currency sovereign exposure in Nigeria, Suriname, and Ghana. We took profits in Nigeria, as the government is figuring out how to proceed with policy adjustment and reforms. The key concern in Suriname is domestic politics, which might get noisy in the runup to the presidential elections. We also see limited upside in Ghana in the run-up to the elections. In terms of our investment process, this worsened the policy test scores for these countries. Finally, we reduced our local currency exposure in Peru and hard currency quasi-sovereign exposure in Singapore. We used these positions as funders for other more interesting opportunities. Peru might be affected by a slow pace of China’s recovery (which might weight on copper prices), and the narrowing policy rate differential with the U.S. In addition, there is a risk of contagion from the “bad LATAM” regional story. These factors worsened the technical test score for the country. Disclosures This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees. Duration measures a bond’s sensitivity to interest rate changes that reflects the change in a bond’s price given a change in yield. This duration measure is appropriate for bonds with embedded options. Carry is the benefit or cost for owning an asset. Yield to worst is a measure of the lowest possible yield that can be received on a bond with an early retirement provision. Averages are market weighted. The yields presented do not represent the performance of the Fund. These statistics do not take into account fees and expenses associated with investments of the Fund. All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. 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Derivatives may involve certain costs and risks such as liquidity, interest rate, and the risk that a position could not be closed when most advantageous. ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within an active investment strategy’s investment objective, inclusion of this statement does not imply that an active investment strategy has an ESG-aligned investment objective, but rather describes how ESG information may be integrated into the overall investment process. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation. © 2024 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

Gold is one of the most reliable and accurate financial measures one can use. Historically, the Dow/gold ratio has provided a very good signal for silver bear and bull market cycles

Here is a long-term silver chart compared to a long-term Dow/gold ratio chart:

On the silver chart (the top chart), I’ve highlighted the significant Dow/gold ratio peaks with a blue line. In every case, silver made a significant bottom some years after the Dow/gold ratio peak. These were signals for the (then coming) silver bull market.

Once in the bull market, significant silver peaks occurred within 8.5 years, as measured from the Dow/gold ratio peak (marked in red), with the Great Depression silver peak occurring the soonest (6 to 7 years after).

In October of this year, it will be 6 years since the Dow/gold ratio peak. That’s when we’ll be entering a phase where an interim peak becomes probable, but not before some big rallies manifest.

The takeaway from this should be that we are close to a period where massive (sustained) silver rallies will likely occur, seeing that the best rallies are often near the peaks and that silver actually rallied on a sustained basis for at least 2 years before each of those peaks.

Each of the silver peaks (indicated) was nearer the bottom of the Dow/gold ratio. The current level of the ratio is still closer to the 2018 peak, so it still has some way to go. Again, this means that the best rallies are still ahead.

This is even more interesting (not always in a good way) when considering that we are probably very close to monetary reform:

Warm regards

Hubert Moolman

For more of this kind of analysis, subscribe to my Premium Service. I also have a Silver Fractal Analysis Report that provides more insight regarding silver market.
Hubert Moolman is an independent gold and silver analyst who specializes in fractal analysis and the fundamentals of gold and silver . Hubert is the owner of HGM and Associates and HGM Research. Hubert’s work is regularly published in the premier gold and silver publications such as: Kitco.com, GoldSeek.com, SilverSeek.com, Mineweb.com, Resourceinvestor.com, Seekingalpha.com and many more.

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