Gold edges higher, looks to recoup some recent losses induced by coronavirus vaccine hope


Gold prices headed higher Tuesday, looking to recoup some losses a day after renewed optimism about a vaccine for the coronavirus undermined the need for a safe haven, causing gold to retreat from the highest intraday levels since 2012.

Prices have found support from “fears of a global recession and fallout from central banks’ stimulus measures, while an uptick in risk-appetite after a positive report about a potential COVID-19 vaccine limited bullion’s advance,” analysts at ICICI Bank, wrote in a Tuesday note.

Gold prices have been mostly elevated recently, posting a climb last week, amid worries about the economic impact of the COVID-19 pandemic that has likely pushed the world into recession, underpinning the traditional haven appeal for the yellow metal that tends to rise during economic uncertainty.

Gold for June delivery on Comex
GC00,
+0.40%

GCM20,
+0.40%

tacked on $7.30, or 0.4%, at $1,741.70 an ounce, following a 1.3% decline Monday, which marked the first decline in five sessions.

Meanwhile, July silver
SIN20,
+2.04%

rose 32.2 cents, or 1.8%, at $17.79 an ounce, after climbing by more than 2% on Monday.

Although reports indicate that pharmaceutical company Moderna Inc.
MRNA,
-1.50%

has made some early progress toward a vaccine for the virus, some gold bulls say that the outsize fiscal and monetary stimulus measures enacted by governments across the globe will support gold buying over the long term.

“For long-term gold positions, a vaccine may not be an absolute game-changer as central bank balance sheets will not miraculously evaporate, and political/trade tensions between China and the US are unlikely to de-escalate,” wrote Stephen Innes, global chief market strategist at AxiCorp, in a daily research note.

Other metals on Comex moved up Tuesday, with July copper
HGM20,
+0.43%

at $2.417 a pound, up 0.5%. July platinum
PLN20,
+1.96%

rose 1.9% to $885.50 an ounce and June
PAM20,
+2.62%

added 2.9% to $2,086.40 an ounce.

Most palladium is in the catalytic converters of cars and “the Asia car market is back with vengeance,” with China car sales in April 2020 being over April 2019, R. Michael Jones, chief executive offer of Platinum Group Metals Ltd.
PLG,
+3.12%

told MarketWatch. Earlier this month, the China Association of Automobile Manufacturers reported that Chinese carmakers shipped 2 million vehicles to dealerships and stores in April, up 0.9% from a year earlier, according to Bloomberg News.

“A family road trip rather than boarding a plane could become a trend. Personal, private, and clean are all words that we could see in car ads soon. Low gas prices add to the attraction,” Jones said.

Read:Signs of a rebound in gasoline demand hint at higher oil prices



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Gold prices decline as easing coronavirus lockdowns spark optimism


Gold prices traded lower Monday, with a cautiously optimistic tone for stocks denting haven-related demand for the yellow metal.

Gold for June delivery
GC00,
-0.50%

on Comex fell $13.40, or 0.8%, to $1,722.20 an ounce, after posting a 2.2% weekly gain, and its fourth weekly rise in five weeks on Friday, according to FactSet data.

Meanwhile, May silver
SIK20,
-0.05%

lost 14.3 cents, or 0.9%, to $15.12 an ounce, following a weekly loss of 0.2%.

Still, bullish analysts contend that gold should remain supported even as lockdowns intended to limit the spread of the novel strain of coronavirus are rolled back, given uncertainty over the speed of a subsequent economic rebound.

“Even when the lockdown is lifted, the world will still be far from any kind of normality. In fact, the bigger risk then is economic collapse, as indicated by the disastrous economic indicators virtually everywhere,” said Carsten Fritsch, analyst at Commerzbank in a note. “To counter this, governments around the globe are likely to continue spending unparalleled sums of money — most of which will be created by the central banks,” he wrote.

The states of Georgia, Oklahoma and Alaska started loosening restrictions on businesses despite warnings from public-health experts that such moves could be premature. New York Gov. Andrew Cuomo said the state will likely begin to reopen the economy in certain areas “with certain precautions after May 15.”

Children in Spain were allowed outdoors for the first time in six weeks if accompanied by an adult on Sunday and the government will allow Spaniards to leave their homes for walks and exercise starting May 2.

Italy and Belgium laid out plans to begin easing some restrictions on May 4, while France aims to begin easing its lockdown on May 11.

This week, investors are “keen to know what steps will be taken next by the Federal Reserve and European Central Bank,” said Hussein Sayed, chief market strategist at FXTM.

“For the ECB, it’s widely expected to raise its limits for asset purchases and continue to pressure Eurozone governments for further fiscal stimulus measures,” he said in a daily note. “We are also expecting to see further discussions related to creating a bad bank, which is clearly needed to confront the upcoming recession.”

Meanwhile, the Fed is “not likely to announce anything new” in its monetary policy statement due Wednesday.

However, “after successfully calming the markets with several unscheduled policy decisions, it is time to hear the FOMC’s outlook on the U.S. economy and what additional action can be taken if the situation deteriorates further,” said Sayed.

Elsewhere, May copper
HGK20,
+0.27%

fell by nearly a cent, or 0.3%, at $2.33 a pound, after the industrial metal produced weekly loss of 0.3% on Friday. July platinum
PLN20,
+0.51%

was down $5.30, or 0.7%, at $768.50 an ounce, following a weekly decline of 1.5% for the commodity. June palladium
PAM20,
-4.24%

headed $90.10, or 4.5%, lower at $1,895.20 an ounce, after finishing Friday with a weekly loss of 6.8%.



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Human ingenuity will solve the coronavirus, but I’m worried we might screw up everything else


It is very, very hard to be short human ingenuity.

For example, when you buy commodities, you are betting, partially, that people will be incompetent at producing or obtaining them. Occasionally this happens, but not for very long.

Commodity prices rose in the mid-2000s because of other factors, such as a sharp rise in inflation expectations, resulting in large institutional allocations to commodities via commodity index swaps. But it wasn’t because we screwed things up.

Commodity prices generally go down over time. The long-term returns on commodity indices have been bad. Crop yields keep going up, and fracking has substantially reduced the price of oil
US:CL
and natural gas
US:NG00.
The world is having some trouble getting its hands on more gold, but those of you with gold
US:GC00
in your portfolios aren’t sad about that.

To be clear: A bet on rising commodity prices is either a bet on macro factors, like inflation, or on profound political shifts. It is hard work betting against human ingenuity.

When you short the stock market
US:SPX,
you are also betting against human ingenuity. There have been a handful of times in history when this has worked. The financial crisis 12 years ago was one of them. But even the financial crisis, peak to trough, was over in 21 months.

The European debt crisis, which began in earnest in 2010, was equally devastating, but only resulted in a decline of about 20% in U.S. stocks. The LTCM/Russian debt default in 1998 also only resulted in a decline of about 20%. The 1991 recession, as severe as it was, was just a blip in historical terms.

In 2008, a group of short-sellers became famous by shorting the U.S. housing market. Investors have spent the past 10 years trying to replicate that feat, unsuccessfully.

Human beings do occasionally screw up — there are financial accidents from time to time. But the imbalances and excessive leverage that were present just a month ago started building long before that.

You could have been short in 2015, 2016, 2017, 2018 and 2019 — and people were. If you get one of these bear markets right, the timing will be mostly luck, and you will pay a lot of carry in the process.

Rate of change slowing

There is a lot of pessimism around COVID-19. The pessimism mostly comes from New York, where the number of infections is greatest, and from people working in health care, who are witnessing truly awful things every day.

Many people seem to believe that:

• We will not figure this out.

• We will be under quarantine for months.

• Social distancing will not work.

• Hospitals will be overwhelmed.

• Life will be altered forever.

Humanity has had a pretty good track record of solving problems, whether it was terrorism, the cold war or other health scares. Nobody is really paying attention to the good news.

The good news is that we were technologically more prepared to deal with a pandemic in 2020 than at any point in history. Zoom
US:ZM,
and other platforms, are connecting us all — but all the media is focusing on is the security risks.

Technology is helping us deal with the crisis and allocate resources. The news is about the ways resources are misallocated.

The vast majority of people are practicing social distancing. The news is about the people who aren’t — the spring breakers in Miami Beach.

Every step of the way in this crisis, we have consistently underestimated government, underestimated the private sector and underestimated health-care workers. And yet, the rate of change of COVID-19 cases is actually slowing.

Of course, the actual number of COVID-19 cases is not slowing, but the rate of change is.

Typically when people run into trouble with bonds or options, it’s because they don’t understand the second derivative. The market discounts, and by the time it becomes apparent that the number of infections will flatten, the market will have already rallied. It will be too late to buy in at the lows … or maybe it already is.

We’ve flipped the switch

The virus doesn’t scare me; our financial response to the virus scares me.

We have flipped the switch on unlimited deficit spending, unlimited quantitative easing (QE), and what is basically modern monetary theory (MMT). We are not going to put that toothpaste back in the tube.

That is the part I am worried about. We have crossed the Rubicon.

If commodity prices rise significantly, it will probably happen because of macro factors — mistakes at the policymaker level.

If equity prices decline significantly, it will probably happen because of macro factors — mistakes at the policymaker level.

Stocks won’t go down because of the virus. We will solve the virus in the short term. Stocks may go down because of what comes after the virus, which is too terrible to contemplate.

I believe in human ingenuity. I believe in our ability to solve problems.

I also believe in our capacity to make problems worse. I believe in the human tendency to question the reality of economic trade-offs — as some think you can have your cake and eat it, too.

Jared Dillian is an investment strategist at Mauldin Economics and a former head of ETF trading at Lehman Brothers. Subscribe to his weekly investment newsletter, The 10th Man, and listen to his daily radio program, The Jared Dillian Show. And follow Jared on Twitter @dailydirtnap.



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