Displaying items by tag: yields

(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.

(New York)

It has been forecasted for some time, but now it is finally happening—US banks are hiking dividends. After getting the all clear from regulators after successful stress tests, US banks are beginning to hike their dividends. For instance, Morgan Stanley and Citigroup hiked their dividends by 13%+ recently, with both now yielding 2.5% or over. Bank stocks have been beat up over the last year, with Morgan Stanley down 10%, for instance.

FINSUM: On the one hand, bank stocks looked undervalued and now have attractive yields. On the other, if you think we are headed towards a slowdown, then it is not a good time to buy financial shares.

(New York)

Falling yields are having a very positive effect on gold. The metal is already enjoying its best first half in years, and the fundamentals for gold look solid. Potential weakness in equities and worries about growth are both stoking gold demand, while lower yields and a weaker Dollar are also supportive. Gold is now being used as a hedge against equities in a way that bonds have traditionally been employed. “The bond market is not acting as a reliable hedge against equity weakness in the way that everyone expected it to and it hasn’t operated that way since 2008. Gold is providing better protection against potential equity weakness right now than bonds are”, says the head of gold strategy at State Street Global Advisors.

FINSUM: Gold seems like it has a nice path to keep its performance going. That said, we are worried rate cuts might spark a more risk-on equity market, which would pull money out of the metal.

(Washington)

Most investors spend their time worrying the Fed is going to cut the party short. Historically speaking, that has often been the role of the central bank—keeping things from getting too out of hand. However, Fed chief Powell does not appear to want to be the sober chaperone at the party this year, as the dovish positioning is heavy. Accordingly, there seems to be a strong chance of a melt up in stocks right now, or a big late stage rally. UBS, however, says the opposite, arguing that investors will stay hesitant because of high valuations and weak earnings.

FINSUM: We don’t think there will be a melt up. We just think the market will re-enter the post-Crisis goldilocks mode they were in, where rates are low and the economy is healthy, clearing the way for multiple expansion.

(New York)

Gold is having a good year, up almost 10% after a very long bear market. But where might it be headed now that the Fed is likely going to start a cutting cycle? The answer is probably significantly higher. The macro backdrop is perfect for gold—geopolitical tensions are high, there are worries over the domestic and global economy, the Fed is going to be cutting (lower rates are better for zero-yielding gold), and the Dollar is likely to weaken, making gold cheaper for overseas buyers.

FINSUM: We agree all the ingredients are there, but if the Fed starts cutting, it may alleviate a lot of worries about the economy and make risk assets look more favorable.