Gold surges through US$2,000

Blog
Friday 7th August 2020

Gold surges through US$2,000

Blog
Friday 7th August 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets tracked higher for the week. 
  • In quarterly company reporting, more than 80% of the largest US companies have beaten market estimates thus far, whilst the number is closer to 65% for European companies. Expectations were very low but given the uncertainty in markets, investors remain happy with taking the win.
  • In local stock news, Virgin Australia said it will reduce its workforce by 3,000 workers and dissolve the Tiger brand, in plans to emerge from voluntary administration. It looks likely they will return to their roots of being a low-cost airline, but the new owner has said it wants the airline to continue to challenge Qantas for the corporate sector.
  • ResMed shares fell sharply after the company disappointed investors with its 4th quarter results. The result was always going to be weak given global lockdown has restricted people from seeking treatment and upgrading their equipment.
  • Scentre Group, the owner of Westfield shopping centres in Australia, said it expects the value of its property portfolio to decline by 10% when it gives its half-year results next month.
  • The gold price pushed through US$2,000 per ounce for the first time ever, with investors continuing to pile into gold ETFs. The weakness in the US dollar and very low interest rates have pushed gold prices up in the short term whilst the prospect of negative real rates (ie. interest rates adjusted for inflation) in the longer term are also supporting the price surge.

Economics:

  • The RBA left the cash rate at 0.25% as expected and didn’t announce any new stimulus. They did however reconfirm their support for the economy, with the Board not expecting inflation to be an issue for a long time, thus confirming that rates will remain near-zero for the foreseeable future.
  • Australian private sector credit fell in June, with business and personal credit contracting sharply. Housing credit bucked the trend, with credit to owner occupiers growing whilst credit to investors was flat. Housing credit now sits higher than the same time last year.
  • The value of new home loans rose by 6.2% in June, coming off the back of large falls in April and May. Investor and owner-occupied home loans rose by 8.1% and 5.5% respectively, with Queensland seeing the biggest lift.
  • The income of the average Australian household has lifted over the past year thanks to a surge in government benefits and the early withdrawal of super. However, spending has fallen over the year.  Income growth has been the strongest for younger people considering most are currently getting government benefits in excess of their usual pay.
  • The value of Australian retail trade rose by 2.7% in June, but still finished the quarter down as the rises in May and June weren’t enough to offset the sharp fall in April. The quarter also saw retail trade volumes fall by 3.4%, with large falls in spending on clothing / footwear and eating outweighing the rise in spending on household goods. The falls will further negatively impact Australian economic growth.
  • Australia’s trade surplus increased yet again in June with a $8.2 billion rise, with a surge in gold exports, whilst strong iron ore and coal exports were negated by significant falls in oil and gas exports. Rural goods exports also rose for the month. Imports also rose, with consumer goods the main beneficiary.
  • The Victorian stage 4 lockdown will cost the country up to $12 billion and reduce quarterly economic growth by 2.5% according to PM Scott Morrison.
  • US economic growth contracted by 9.5% in the June quarter, wiping out nearly 5 years of growth. Eurozone economic growth fared worse, shrinking by a larger than expected 12.1% in the June quarter, which was its deepest contraction on record.
  • Factory activity rose across the Eurozone, confirming a global improvement with China, UK, and the US all reporting upbeat numbers. German factory activity expanded for the first time since 2018.

Politics:

  • Victoria moved into stage 4 lockdown, with a 8pm-5am curfew imposed and restrictions on travelling more than 5km from home, whist the Premier threatened that stage 5 may be needed after a spike in virus cases and deaths. The stage 4 lockdown and curfew is expected to be in place for at least 6 weeks. Disastrous for the Victorian economy and small/medium sized businesses. Queensland also closed its borders.
  • In response to Victoria’s stage 4 lockdown, the Federal Government will tip in an extra $15 billion into the JobKeeper scheme and ease eligibility requirements. Around 4 million Australians will be on JobKeeper through the September quarter.
  • US politicians failed to agree on a new round of stimulus measures which saw the unemployment benefits package expire. President Trump threatened to push through a package via executive order if lawmakers could not agree. The expiration sees more than 30 million Americans move to very low unemployment benefits as they lose a US$600 a week supplement. It will force some back to work (a good thing), but it will devastate others likely resulting in defaults and a drop in consumer spending. Lawmakers playing with peoples’ lives leading into an election……
  • US President Trump said he will move to ban the popular video app TikTok in the USA unless an American company can buy their US operation. The move comes from concerns regarding the sharing of personal data with the Chinese government. The Australian government has said they won’t be banning the app, but confirmed that users personal data was at risk.


Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972

Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972

Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a factual nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns.