Gold edged to a new 8-session high overseas and remains generally well bid in U.S. trading, despite continued stock market strength. Waxing and waning optimism regarding a Phase 1 trade deal is still seemingly the primary driving forces in the market.
Certainly the impeachment hearings and the protests in Hong Kong are still being watched closely. In fact, our daily newsletter noted that China's state-run media suggested that the impeachment hearings are being followed for any signs that might indicate President Trump's bargaining position is weakening.
This prompted our analysts on the futures side of the house to state, "We shift bullish on a hunch that China won't deal during impeachment." This seems pretty logical, especially when you consider that Congress and the administration seem to also be getting more vociferous in their condemnation of violence in Hong Kong.
In addition, unrest in Iran seems to be intensifying although reports are sketchy at best due to a near-complete shutdown of the intranet and news blackout. Nonetheless, Amnesty International says it has credible reports that more than 100 protesters have died.
With protests also happening elsewhere in the Middle East, the movement as a whole is being likened to a new Arab Spring. This is causing heightened geopolitical instability in an already unstable corner of the world.
The Fed's latest Financial Stability Report, released late last week, suggests that external risks to the U.S. economy are of increasing concern.
"The threat of geopolitical shocks was viewed as broadening; indeed, contacts cited numerous and potentially mutually reinforcing East Asian flashpoints in addition to Iran tensions and Brexit." – Fed's Financial Stability Report
However, there is plenty going on domestically that has market participants worried. First of all, "uncertainties around trade and monetary policy" are the top two sources of risk cited for the next 12 to 18 months by market participants. The risk of "sharp declines in market liquidity" ranks high on their list as well.
The Fed also highlighted elevated asset prices and debt as areas of concern, along with leverage in the financial sector and funding risks.
These are all legitimate concerns that could have significant detrimental impacts on the economy and markets.
Perhaps reflective of the mounting growth risks, the Atlanta Fed's GDPNow model for Q4 took a decisive turn lower last week, tumbling to just +0.3% on 15-Nov from 1.0% on November 8.
This lower reading came on the heels of mixed retail sales report and a pretty significant miss on industrial production.
Given the enumerated risks – both external and internal – portfolio diversification is going to be increasingly important for protecting your assets.
The time to add that protection – in the form of physical gold – is ideally before the crisis starts. Both price and premium are likely to rise as the risks manifest.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
