Precious Metal Market Update – 20 May 2019


To Our Precious Metals Clients, Investors and Enthusiasts,

Welcome to our newly reconfigured WEEKLY market update!  After a brief period of trial and error with a monthly format, we have decided to return to publishing on a weekly basis.  This has many benefits. First, markets shift when markets decide a shift is warranted. A weekly format provides us with the opportunity to highlight any changes to sentiment or investment themes as these shifts occur.  Second, more frequent publications allow us to cover more market-moving events that would likely have ended up on the editing room floor with less frequent publications. Finally, the weekly report allows us to maintain a consistent dialogue with our readership.  As many of you already know, we here at Kilo and Precious Yield greatly value our relationships. We feel that the weekly format more closely mirrors our values as a firm – consistent and constant dialogue with our valued relationships.

While we will continue to cover many of the same markets in our new format, we will hone our precious metals focus on gold.  Other precious metals such as silver, platinum and palladium will be discussed as markets warrant. You may even see an occasional special report on these metals as opposed to coverage on a weekly basis.  As we continue to refine our voice to the market, we would be happy to listen to any feedback you have about our new format or our coverage in general. Happy reading!

 

Macro Commentary

Overview:  After a tranquil April, May has seen renewed volatility across markets. This past week, an about-face in China trade negotiations caught market participants flat-footed.  Despite an increase in US tariffs set in motion last Friday, markets continued their belief that further negotiations would ensue and a favorable deal would be struck. However, before US markets opened on Monday, China retaliated with their own set of tariffs and confidence in a resolution began to falter. As a result, risk off and flight to safety dominated the early part of the week, particularly in gold and government bonds. While bond yields plumbed recent lows, expected central bank dovishness strengthened considerably. Fed Funds futures now indicate an almost 75% chance of easing by the December 2019 meeting.  In this environment, we continue to advocate for investor alert given the shape of the domestic yield curve as well as the directional change in US Treasury – German Bund spreads. Despite our heightened awareness, we do think that the economy has more room to run and that risk-on will continue to have the upper hand over the coming months.

 

US Equities:  US Equities fell slightly during the week, with the S&P down 0.75%. Stocks, however, recovered substantially from their Monday lows post China’s trade retaliation.  This bounce speaks to the market’s resilience and was further evidenced by equities’ ability to ignore some weaker than expected economic data mid-week.  Both retail sales and industrial production significantly missed estimates despite both still indicating positive YoY growth. Consumer confidence, on the other hand, surprised to the upside.  Volatility, as measured by the VIX, ebbed throughout most of the week after spiking to levels just above long-term averages in conjunction with the trade negotiation break down.

 

Government Bonds:  A significant portion of the yield curve continues to remain inverted and demands our focus as we refine our overall outlook for markets going forward.  As mentioned in our opening, bond yields cratered at the beginning of the week falling from 2.47% on the 10 Year Treasury to 2.40% initially on Monday. Government bonds attempted to sell off Tuesday as equities began to rebound, but this sell-off was quickly met with resistance on Wednesday as US economic data disappointed, sending yields below 2.40%.  We are currently sitting near the lows of 2019 given this week’s action.

 

US Dollar:  The USD, as measured by the dollar index (published by ICE), was slightly stronger during the week.  Central bank policy remained a net neutral to FX and the US Treasury / German Bund spread was essentially unchanged despite German 10 Year bund yields turning noticeably negative.   Depreciation in the Euro was consistent with the strength of the dollar index (0.68% vs. 0.69% depreciation for the index) and masked the relative strength of the yen and the relative weakness of the pound.  The yen is currently viewed as a safe haven currency to avoid the US China trade war while the pound continues to be impacted by Brexit news flow. Of note, and not a component of the dollar index, the Chinese yuan has weakened significantly as the prospects for a trade resolution have declined.  Depreciation in the yuan picked up significant steam in the last week and bears monitoring for clues as to the likelihood of future trade success.

Risk off drives USD strength vs. CNY

Gold:   As measured by the LBMA afternoon fix, gold prices traded 0.5% lower for the week but continued to trade in an extremely narrow price band.  Despite an uptick with the rally in gold at the beginning of the week, gold price volatility continues to exhibit its lowest levels since the financial crisis.  Over the last several months, gold was caught in a tug of war between the receding need for flight to safety assets offset by the shrinking future perceived yield differential between US Treasuries and the precious metal.  This week temporarily broke that trend as global bond yields fell WHILE gold prices also fell. This unusual outcome may have had to do with Venezuela selling gold out of its reserves to fund imports – see Bloomberg article.  We don’t believe this past week’s anomaly will persist and going forward, the receding need for flight to safety assets will continue to win this battle over the near term.  As a reminder, turning gold as an asset for diversification purposes into an alternative investment with Precious Yield allows for some cushion against gold price declines like we saw last week.  Precious Yield accounts allow investors in gold to earn interest on their holdings while leaving gold’s utility as an investment portfolio diversification tool intact. Please browse our website or contact us with any questions regarding a Precious Yield account.  See you next week!

 

Gold 1-Month Price Chart

 

Silver 1-Month Price Chart

 

Platinum 1-Month Price Chart

 

Palladium 1-Month Price Chart

 

About Us

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Precious Yield, a subsidiary of Kilo Capital, offers long term precious metal investors the unique ability to safely own gold, silver, and platinum and enhance their total returns by earning a yield on these metal balances. Precious Yield deposits are always 100% backed by physical metal. The physical metal balances are regularly verified by EY, one of the largest global accounting firms. Over time, the benefit of earning interest on gold, silver, or platinum balances can meaningfully improve an investor’s returns.

Kilo Capital is a specialty finance and trading company that provides tailored financing solutions and risk mitigation tools for companies who work, trade, deal or invest in precious metals. Our team of experienced precious metals professionals structure the right combination of loans, metal leases, select inventory finance, and hedging services so that our clients achieve their business goals.  We work extensively with jewelry manufacturers and wholesalers, coin dealers, metal refiners, other industrial users of precious metals and investors in gold, silver, and platinum.

 

How We Can Help

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At Precious Yield we offer astute precious metals investors unallocated deposits of gold, silver, and platinum. In return for term deposits of these metals, we pay interest on gold, silver, and platinum that is greater than that customarily offered by the large bullion banks. Sign up for our weekly precious metal market commentary and build your bullion market expertise.

At Kilo we apply our deep understanding of the businesses active in jewelry wholesale, metal refining, scrap aggregation, coin and investment bar dealing, and other precious metal businesses to help with the unique challenges precious metals present. We offer highly specialized lending solutions including precious metals loans, leases, and select inventory finance to companies that use precious metals. Our lending solutions are structured such that your metal price exposure is fully hedged. As a result, you can focus on what really matters – running your business.

To discuss how we can help you achieve your metals related objectives, please call us today or visit us at www.kilocapital.com and www.preciousyield.com

 

Disclaimer

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Kilo Capital Corp, its successors and assigns, and its subsidiaries and affiliates (collectively, “Kilo”) produce newsletter services which, along with any related publications and its website (collectively, the “Newsletter”), are authored and edited from time to time by members of the Kilo team.

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