Fear of missing out (FOMO) may be coming to gold

The local market followed the US market with a positive start that faded to a negative close. We are still stuck on the 10th consecutive week without a single day’s turnover above $9 billion. It was another day where global investors were mainly in charge while tax loss selling and bargain hunting are clearly visible in the small to micro caps. Tech and telecom lead the way higher as bond yields declined on risk off trade while miners and health care were the underperformers. Miners are still under China influenced commodity slide while health care gave up some of the bounce from yesterday.

It is becoming clear that Central Banks argument that inflation is transient has been surpassed by the risk of hyperinflation. Future Fund is preparing for reflation cycle with QE tapering and rising rates. RBNZ has started to flag tapering ahead of potential rate rise cycle in 2022. Canada has already started to taper. RBA may not believe the fantasy budget forecasts for the election or ABS economic data but they can’t ignore the most comparable countries and their central banks. Bank of Canada is moving to curb the risk of their currency getting jammed up by the depreciating USD. Canadian Dollar to USD (CADUSD) has run up 20% since the pandemic and the rate of rise has not slowed down. Chinese Yuan to USD (CNYUSD) has hit 3 year high and moving higher. RBA has already created multiple asset bubbles in property and equities. The last thing we need is the AUDUSD to get jammed up to parity by the relentless debasement of USD.

Quantitative Easing (QE) was always a short term fudge to allow economies to evolve to deal with reflation. Overused QE has created reflation cycle. Now the Central Banks have to start tapering QE. It is not a question of whether to taper or not. It is a question of when. Delaying the move can have substantial effect on the economy. RBA has a tough decision to make with a federal election in Sep/Oct. It needs to taper ahead but likely to taper after.

Spot Gold has broken US$1900 and A$2450 levels. Aussie Gold miners are shining in the reflation turmoil as the inflation hedge. The question is…do you have enough? Aussie gold miners valuation suggests that you probably do not. Fear Of Missing Out (FOMO) may be coming to Gold !

Victoria’s latest cluster means the government running towards a Sep/Oct election cycle will have to deliver substantial travel/tourism pork-barreling built into the budget. Expect the government to also boost media revenues over the next year with a taxpayer funded election campaign.

Let us run through the main data points released in the last 24 hours…

The Gross Domestic Product (GDP) in Germany contracted 3.10% in the first quarter of 2021 over the same quarter of the previous year. Germany's economy shrank 1.8% on quarter in the three months to March 2021, slightly worse than a preliminary estimate of 1.7% fall and following a 0.5% growth in the previous period. Europe's largest economy slipped back into contraction after a partial recovery in the second half of 2020, due to restrictions imposed to contain the coronavirus pandemic. Household consumption fell by 5.4% and investment in machinery and equipment was down 0.2%. In addition, net external demand contributed negatively to the GDP as imports rose 3.8% and imports increased at a softer 1.8%. Meanwhile, gross fixed capital formation in construction grew by 1.1% and government spending was 0.2% higher. Compared with the fourth quarter of 2019, the quarter before the coronavirus crisis hit the economy, GDP was 5.0% lower. Despite being the strongest economy in EU, Germany is looking at double dip recession risk as new pandemic waves drive more restrictions.

The S&P CoreLogic Case-Shiller 20-city home price index in the US soared 13.3% yoy in March of 2021, following an upwardly revised 12% growth in February and way above forecasts of a 12.3% rise. It is the largest annual price increase since December 2013, with Phoenix (20%), San Diego (19.1%), and Seattle (18.3%) reporting the highest gains among the 20 cities. Considering 9 US census divisions, house prices increased 13.2%, the most since December 2005. “These data are consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes. This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing", says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. If you didn’t know, property bubble is global and the US property prices are higher now than pre GFC.

Sales of new single family houses in the US sank 5.9% month-over-month to an annualized rate of 863 thousand in April of 2021, well below forecasts of 970 thousand, amid soaring prices due to rising material costs. The March reading was also revised sharply lower to 917 thousand from 1,021 thousand. Sales were down in the Northeast (-13.7%), the Midwest (-8.3%) and the South (-8.2%) but increased in the West (7.9%). The median sales price increased to $372,400 from $310,100 a year earlier. There were 316 thousand new home sales available on the market, higher than 304 thousand in March. Inflation driven high prices have started to weigh on property market sales in the US.

The Westpac-Melbourne Institute Leading Economic Index in Australia rose 0.2% month-over-month in April of 2021, after an upwardly revised 0.5% gain a month earlier. Meantime, the six-month annualized growth rate, which indicates the likely pace of economic activity relative to the trend of three to nine months, advanced 2.85%. Australia is fading back to the reality of structurally weak low growth after the debt fueled pop.

Total construction work done in Australia rose by 2.4% quarter-on-quarter in the three months to March 2021, after an upwardly revised 0.4% gain in the previous period and beating market consensus of a 2.2% growth. The pickup was supported by rises in both residential (5.1%) and engineering work (2.2%). On the other hand, non-residential activity fell 1.6%. Through the year to the first quarter, construction output dropped by 1.8%. Construction handouts at multiple levels keeps the bubble well fed for now.

Comments on US market last close…

US market started positive and faded into negative as inflation fears raised tapering talk. NASDAQ -0.03%, S&P -0.21%, DOW -0.24% and RUSSELL -0.97%. US house prices beat expectations and bubble worries are elevated. New home sales were weaker than expected as inflation bites. Risk off trade drove investors from risk assets like equities and commodities to risk off assets like bonds and gold. Gold touched US$1900 and probably consolidate here for a few days. Unlike usual risk off trade, USD faded lower. Energy and Banks lead the reds while Retail and Property lead the greens. Gold was a solid outperformed. Do you have enough? Probably not enough. We are moving from recovery cycle to tapering cycle. We may have seen the peak in the current market cycle. Manage your risk as month end approaches in the seasonally weakest part of the year for markets.

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