Displaying items by tag: Commodities

(New York)

Societe Generale, famed European investment bank, has just told investors they should load up on gold. Gold is seeing several value drivers at the moment. These include the economic cycle and fears over the trade war, a lack of other safe haven assets, and importantly (and much less known), central bank purchases. Global central banks (like China’s) are trying to diverse away from the Dollar, and gold is an attractive way for them to do so.

FINSUM: There are a lot of tailwinds for the yellow metal right now. The Fed is less dovish than most expected and there does not seem to be much risk of a huge risk-on shift that would leave gold forgotten.

(Houston)

The Chinese Yuan reached a landmark and worrying level today. It fell to below 7 versus the Dollar, marking its weakest point in 11 years. The weakening currency could help Beijing offset economic weakness from tariffs. “We will see a new wave of depreciation among Asian currencies in the foreseeable future, and there could be further risk-off movements in the global markets. It looks like a tsunami is coming”, said an economist at Commerzbank. This will have major implications for commodities as China is the world’s biggest consumer, and now that the currency is weaker, it will be harder to buy, meaning prices must come down.

FINSUM: Dollar prices for commodities (almost all are priced in Dollars) will need to come down commensurately with the Yuan in order for the Chinese to maintain their purchasing power.

(New York)

Gold has had an extraordinary run over the last few months. It is the first time it has really broken out of its funk since just after the Crisis. However, both JP Morgan and Barclays are saying it is probably time to cash out. Both argue that gold’s recent rise has been driven by speculation and not real fundamentals, such as the direction of the Dollar and interest rates. As such, these prices look vulnerable.

FINSUM: This is good analysis, but we also have another reason for you—if the Fed cuts and investors switch to risk-on assets, where does that leave gold?

(New York)

Gold has been stuck in a bear market for a long time. However, it is getting close to completely breaking out of its funk, as the yellow metal is at a 6-year high. Gold is being driven by worries over the economy, falling yields, and a potentially weaker Dollar, as well as geopolitical fears. UBS summed up gold’s position this way, saying “[Due to the] declining cost of holding gold as rates remain low or continue to fall, gold’s appeal as a diversifier and alternative asset amid the current macro environment is increasing”.

FINSUM: Our only worry about gold is if rate cuts cause a risk-on move by investors that will leave gold in the dust.

(Houston)

We know, we know, you don’t want to hear about oil. No one seems interested in the all-important commodity at the moment, but that is exactly why you might want to pay attention. Oil stocks have had a terrible decade—down 10% while the S&P 500 rose almost 300%, hence the derision they face from investors. Prices are so low that oil now composes just 4.5% of the S&P 500, very near to the lowest ever (in 1999). The big question investors need to be asking themselves is “is this peak pessimism”?

FINSUM: We think oil stocks offer some value right now, but what will be the catalyst to make them rise? A big economic boom seems unlikely at present. Oil missed this cycle and it is still oversupplied. We would stay away.