David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Gold's Next Big Bull Market May Be Upon Us

    This article by John Authers for Bloomberg may be of interest to subscribers. Here is a section:

    If gold’s implicit prediction is right, it has two implications. The first and most important one is a belief that inflation is at last due to return, after many false alarms. The second is that gold is now settled in a bull market. 

    So, is gold good value? The metal doesn’t throw off any income streams, and has very few industrial uses, so it is very hard to come up with a measure of fair value. But the following chart, using data drawn up by Charlie Morris of Catley, Lakewood and May in London, is a heroic attempt to arrive at one. Morris devised a formula for fair value using the consumer price index and the average of 10- and 30-year inflation expectations. This indicator briefly showed that gold was wildly overpriced during the worst of the 2008 crisis, a phenomenon that may have been driven by the illiquid markets of the time, that created an unrealistic inflation forecast. Exclude this incident, and we see a steady bull market for gold from 2005 to 2011, followed by a steady bear market, where it moved to a discount. In the last two years, it looks as though it may have started another bull market. By Morris’ calculations, gold is now about 11% over fair value. 

    Gold is still far from the confident prediction of runaway inflation that it briefly produced for a few years after the crisis, even though it is buoyed by safe haven demand at present, along with seasonal interest in gold jewelry, notably from China where the lunar new year is almost here, and by resumed interest from central banks.

    On the supply side, gold-mining groups are merging, creating a reasonable hope of avoiding over-supply in the near future. So, if this move in gold prices is confirmed by a move down in real yields, followed even by an increase in inflation, then this could be part of a bull market to match the one from 2005 to 2011. The critical question is whether the gold market proves to be right this time in its forecast of inflation.

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    Iron Ore Set for 'Major Surplus' as Inventories Build, Citi Says

    This note by Krystal Chia for Bloomberg may be of interest to subscribers. Here it is in full:

    The global iron ore market “is expected to shift into a major surplus with inventories expected to recover to pre-Brumadinho levels by early 2021,” Citigroup Inc. says in note, referring to the Vale SA operation that experienced a dam burst last year.

    “We maintain our directional convictions on iron ore and coking coal, while acknowledging that big price moves might not happen until post-Chinese New Year,” bank says in note, which in part recaps analysis on bulks market issued last month

    “Most market participants agree that iron ore prices will likely drift lower during 2020, with the primary debate being about the timing and extent of any sell-off,” bank says

    “Concerns about 1Q Australian supply-disruption risks and weak Brazilian exports are already reflected in iron ore prices,” it says

    After Lunar New Year, “we see iron ore supply recovering and potential profit-taking by Chinese steel longs,” Citi adds

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    Sony Shocks CES 2020 With Unveiling of Electric Car

    This article by Michael Cogley for the Telegraph may be of interest to subscribers. Here is a section: 

    Tech giant Sony shocked attendees at this year’s CES by unveiling a new electric car.

    The Japanese company, which is best known for its PlayStation games consoles and high-end televisions, revealed the Vision S concept saloon.

    The prototype boasts 33 sensors to monitor inside and outside of the car, as well as an ultra-wide monitor which will be used for entertainment and information purposes.

    Sony chief executive Kenichiro Yoshida said that cars will be redefined as a “new entertainment space”.

    “To deepen our understanding of cars in terms of their design and technologies we gave a shape to our vision,” Mr Yoshida told the tech conference in Las Vegas.

    “This prototype embodies our commitment to the future of mobility and contains an array of Sony technologies.”

    The new concept car also features “360 reality audio”, which Mr Yoshida says will give users an “immersive experience”.

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    Newmont Starts 2020 With New Name and Big Gift for Shareholders

    This article by Danielle Bochove for Bloomberg may be of interest to subscribers. Here ii is in full:

    With gold at the highest in more than six years, Newmont Corp. is promising shareholders a 79% hike in its quarterly dividend.

    It’s also streamlined its name. The 2019 mega-merger that created Newmont Goldcorp Corp. also set up a clunky word echo in its moniker which has finally been fixed by dropping “Goldcorp.” The Greenwood Village, Colorado-based miner said Monday it plans to increase its quarterly dividend to 25 cents a share, from 14 cents, starting in April, subject to board approval. The miner also said it will continue to buy back stock, as previously announced, up to a total of $1 billion. Newmont retired $506 million in stock through the program in the fourth quarter.

    “Our first quarter dividend will offer investors a highly competitive dividend yield and enhanced returns from owning shares of the world’s leading gold company,” Chief Executive Officer Tom Palmer said in a statement. In an interview last month, Palmer said the stock repurchase plan was a “unique opportunity” and signaled that Newmont would likely use dividends to reward shareholders in 2020, provided gold prices stayed elevated. Gold hit its highest level since 2013 on Monday amid soaring tensions between the U.S. and Iran.

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