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2019 Precious Metals Outlook: Fundamentals matter

Published: 09:19 13 Dec 2018 GMT

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13 December 2018

 

 

Video commentary for December 12th 2018

 

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Theresa May survives, Pound bounces, Wall Street steadies but not dynamically, precious metals firm, Dollar eases, oil weak, uranium outperforming, Bonds likely to unwind short-term overbought condition. 

 

 

DoubleLine Webcast

I tuned into Jeff Gundlach’s webcast yesterday afternoon and as usual he had a number of interesting charts and observations.

 

 

Eoin Treacy's view

The first observation I drew is that he was keen to point out the lead indicators for future recessions he employs and how many of them are positive versus negative. Of course, some of these have longer lead-times to a signal than others which is not a point he made. The clear conclusion was that there are certainly challenges emerging and that quantitative tightening is a headwindf for stock markets. The clear message here is that if the Federal Reserve continues to remove liquidity and the ECB holds to its commitment to end purchases that is likely to continue to represent a headwind for asset prices.

 

 

The Fed and monetary Policy

Thanks to a subscriber for this note by Leon Tuey which may be of interest. Here is a section:

Few months ago, Jerome Powell, the Fed Chairman expressed the desire to smooth out past wild swings in the economy by fine-tuning its monetary policy.  Those are not mere words, but the Fed is already putting it into practice.  Note the statements made by the various Fed members. 

In the past, after the election, the Fed would slam the brakes to clean out the excesses.  After the Mid-term election, it would start to stimulate the economy.  Hence, the “Four-Year Cycle”.  The Fed has been tapping on the brakes instead of slamming them.  Hence, the slowing in the economy.  Many, however, are jumping to the conclusion that a recession will take place next year.

The Fed’s new goal is not easy to achieve, but if successful, the U.S. will experience a period of unparallel prosperity and the stock market will continue to climb to heights no one ever believe possible.

Despite its importance, few paid attention to Powell’s announcement.

 

Eoin Treacy's view

One of David’s clearest lessons is monetary policy beats most other factors most of the time. Last year I was writing about the fact that the Fed was asking for trouble by planning to reduce the size of the balance sheet and raise interest rates concurrently. They have delivered a medium-term correction in stocks the big question now is what’s next?

 

 

2019 Precious Metals Outlook: Fundamentals matter

Thanks to a subscriber for this report from UBS which may be of interest. Here is a section on palladium:

 

 

Eoin Treacy's view

A link to the full report is posted in the Subscriber's Area.

Rather than ask whether fundamentals matter of what the outlook is, perhaps it is better to ask whether precious metals are an uncorrelated asset? The answer to the first group of questions is obvious yes, fundamentals do matter and the relative cost of production coupled with demand profiles are important to the market. However, the relative cheapness of the precious metals, excluding palladium, makes them attractive for investors seeking to hedge exposure to increasing volatility in other asset classes.

 

 

Review of recession lead indicators

 

 

Eoin Treacy's view

The yield curve spread has been in the news lately and with good reason considering how much of a move we have seen in the last week and because it has such an impressive record as a lead indicator for future recessions. With volatility on stock market increasing and perhaps more importantly some stress becoming evident in the credit markets I think it is timely to spend some time to do a thorough review of lead indicators for future recessions.

 

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