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HSBC: A Global Trade Slowdown Is a Reason to Buy Gold

HSBC: A Global Trade Slowdown Is a Reason to Buy GoldGold Silver Reports — HSBC: A Global Trade Slowdown Is a Reason to Buy Gold — Analysts at HSBC Group Inc. are telling clients that gold may be about to have another shining moment, as the precious metal’s status as a safe haven asset could boost prices, given the prospect of a looming downward shift in globalization.

The firm’s Chief Precious Metals Analyst James Steel says in a note published on Friday that “demand for gold is often stimulated by the same factors that fan protectionist and populist sentiment” and that “abrupt declines in cross border trade, investment and immigration, the dislocation of global economic policies, and a beggar-thy-neighbor approach to trade is almost tailor-made for higher gold prices.”

Wall Street and Washington have grown more concerned about the future of global trade in recent weeks. Analysts from Bank of America Merrill Lynch warned that “events show nations are becoming less willing to cooperate, more willing to contest.” Meanwhile, U.S. Treasury Secretary Jack Lew recently sought to launch a robust defense of globalization, arguing that efforts to boost trade, combined with a more equitable distribution of the fruits of economic growth, are key to ensuring U.S. prosperity.

Steel argues that if these de-globalization trends continue, gold will be a good investment. He writes that “gold prices tend to rise during periods of contraction in world trade,” while pointing out that the World Trade Organization cut back its expectations for global trade this year to a mere 1.7 percent, compared with its 2.8 percent projection in April.

HSBC: A Global Trade Slowdown Is a Reason to Buy GoldGold is currently trading at $1,255 an ounce, and Steel says he grows more cautious above $1,400, citing the prospect of higher U.S. rates, a stronger dollar, and a slowdown in physical demand.

While Republican presidential candidate Donald Trump is considered to be more ‘protectionist and populist’ than Hillary Clinton, Steel says both candidates are bullish for gold. “She favors addressing income inequality with incremental changes on tax and spending policies. But her spending proposals are mostly offset by proposed tax increases, with little impact on the federal budget deficit.” He adds, “This is gold-bullish, but not on the scale of Mr. Trump’s agenda.”— Neal Bhai Reports

HSBC: A Global Trade Slowdown Is a Reason to Buy Gold

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  • Intercontinental Exchange Inc., which runs the daily London gold auction, will start a futures contract for the metal in the U.S. in February, jumping the gun on the London Metal Exchange which is also working on a London-focused product.

    • The contract, subject to regulatory approval, will be for bullion held in London and traded on ICE Futures U.S. in New York. Each contract will be for 100 troy ounces of metal and will be used to clear the London gold auction, starting in March. The London Metal Exchange is scheduled to begin its own futures contracts in the first half of next year.

      • The move was announced as the London Bullion Market Association, which represents the city’s gold traders, meets in Singapore to discuss ways to modernize a market that clears more than $5 trillion of the precious metal a year. Gold futures also change hands in New York on the CME Group Inc.’s Comex exchange. The London gold auction is held twice a day and has 13 authorized participants, up from four last year.

        • “What we are doing now is really focusing on the market that we already operate,” Finbarr Hutcheson, president of the ICE Benchmark Administration, which runs the London gold auction, said by phone from London. “This solution serves the need of our customers and the demand to develop and grow that market.”

          • ICE said in a statement the existing liquidity and participation in the daily London gold auction will help kickstart the contract. It said clearing would make it easier for more participants to join the auction as they wouldn’t need a credit line with every other member.

          • Last year, ICE started administering the electronic auction that replaced the century-old London gold fixing, a ritual that was taking place by phone. The auction is used by mining companies, refiners and central banks to trade large quantities of gold. It’s also a point of reference for derivative contracts.

          • “Central clearing during the auction will allow the number of diverse direct participants to continue to grow,” Ruth Crowell, chief executive officer of the LBMA, said in the statement. “Central clearing is something that we have hoped to see.”

          • The London Bullion Market Association, the Singapore Bullion Market Association and the ICE Benchmark Administration are studying the feasibility of starting an LBMA pre-AM price at 2 pm Singapore time to add to the existing AM and PM prices. The move would enhance price discovery and bridge the gap between the close of the U.S. market and the opening of London, according to the SBMA.

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