The Winners Of The Current Collapse In Gas Prices

• points will be released including New York state manufacturing, which is expected to be double the previous months, as well as consumer price index (CPI) numbers and October home sales.
• The largest European countries (Germany, France and the United Kingdom) narrowly missed a recession this week, which may help bolster market confidence in the region.

Threats

• Market momentum seems to be flattening, and possibly not to the consensus of recovery expectations, therefore causing fear amongst investors.
• After Russia stole the spotlight at the Asia Summit this week, one can only imagine what the country might attempt to do at the G20 Summit to help bolster its fledgling commodity-driven economy.
• With the tensions in Ukraine on the rise again, and constant saber-rattling from current, future and former superpowers, one can speculate the tightrope that politicians must tiptoe across to keep the global economy in recovery mode.

U.S. Treasury bond yields rose modestly this week as the stock market reached new highs. Economic data was not the big market driver this week.  The market sold off on treasury supply concerns earlier in the week as the three-year note auction came in weaker than expected. Yields declined as the week moved forward, ending just a basis point or two higher than last week.

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Strengths

• October retail sales rose 0.3 percent this week, and excluding automobiles and gasoline rose 0.6 percent. Falling gasoline prices should provide a lift for the consumer going into the holidays, making this a good start to the fourth quarter.
• According to Challenger, a placement firm, retailers hired at a record pace in October, adding 180,600 workers. This is up 13 percent from 2013 and comes in as the strongest number since records began in 1939.
• The U.S. Department of Labor reported that gross hiring rose to 5.03 million in September, the most since 2007, while “quits” rose to a six-year high on improving confidence in the job market.

Weaknesses

• A slew of economic indicators in China disappointed this week as industrial production and retail sales both rose less than expected.
• The U.S. dollar has been strong for months and is likely poised for some retracement in the next few weeks.
• Economic data out of Europe was encouraging, but the absolute level of growth remains very meager.

Opportunities

• Global central banks are easing again, offsetting the incremental Federal Reserve tightening and remaining positive for fixed income globally.
• Short-term Treasury yields were relatively flat week-over-week but remain near the top end of the recent range. This may be an opportunity as yields could reverse course. The catalyst could be weak housing starts or industrial production data scheduled for release next week.
• Municipal bonds continue to look like an attractive alternative in the broad fixed-income universe.

Threats

• There was a fair amount of noise recently with regard to internal grumblings at the European Central Bank (ECB). If the ECB can’t or won’t follow through with additional policy measures, the market will not like that instability.
• Quantitative easing has ended and the next logical step would be an interest rate hike. While estimates of when that may occur remain fluid, the Fed’s relatively hawkish tone increases the risk to the bond market.
• The geopolitical situations in Ukraine heated up again this week and the potential for a misstep remains high. Potential fallout is difficult to predict.

November 12, 2014 Gold, Oil and the Currency War	November 12, 2014 Sit Back and Stay Balanced	November 11, 2014 Is Gold Clawing for a Bottom?

Gold Market

For the week, spot gold closed at $1,189.01 up $11.03 per ounce, or 0.94 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 2.94 percent. The U.S. Trade-Weighted Dollar Index fell 0.13 percent for the week.

Date	Event	Survey	Actual	Prior
Nov 13	China Retail Sales YoY	11.6%	11.5%	11.6%
Nov 13	Germany CPI YoY	0.8%	0.8%	0.8%
Nov 14	US Initial Jobless Claims	280K	290K	278K
Nov 14	Eurozone Core CPI YoY	0.7%	0.7%	0.7%
Nov 18	US PPI Final Demand YoY	1.2%	—	1.6%
Nov 19	US Housing Starts	1025K	—	1017K
Nov 19	HSBC China Manufacturing PMI	50.2	—	50.4
Nov 20	US CPI YoY	1.6%	—	1.7%
Nov 20	US Initial Jobless Claims	284K	—	290K

Strengths

• Gold traders turned bullish for the first time in three weeks as prices neared four-year lows. Additionally, this month U.S. Mint gold coin sales are already more than half of what they were in October, which was the strongest month since January. Austria Mint sales are up 40 percent from October.
• Gold prices rallied on Friday as more than 10,000 contracts for December delivery were traded, pushing the gold price up 1.5 percent within six minutes. Moreover, the one-, two-, three- and six-month gold forward offered rates turned negative, signaling increased physical demand in a tightening market.  Robin Winkler of Deutsche Bank wrote that current polling on the referendum in Switzerland (to require its national bank to hold 20 percent of its reserves in gold) was now leading in the polls.
• On Tuesday, gold futures jumped higher after a report showed that U.S. jobless claims increased more than forecast last week.

Weaknesses

• The World Gold Council announced that gold demand fell to the lowest level in almost five years in the third quarter as bar, coin and jewelry purchases slowed.
• Silver shorts are at record highs as the market remains negative on the precious metals sector due to the strong U.S. dollar. Fund shorts account for 39 percent and 54 percent of total open interest for Comex silver and Nymex platinum, respectively.
• Switzerland’s regulator charged UBS AG employees with front-running in precious metals trading, particularly in silver, as part of its review of the bank’s foreign-exchange business. The Swiss regulator and those in the U.S. and the U.K. ordered UBS and four other banks to pay about $3.3 billion to settle a probe into the rigging of foreign-exchange rates.

Opportunities

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• The UBS commodity strategy team published a contrarian report stating that liquidity will run dry well before the Federal Reserve has a chance to increase the Fed Funds rate, according to the research firm’s Proprietary U.S. Liquidity Indicator. As a consequence, they believe the next significant action of the Fed will be an attempt to reflate the U.S. economy, not rein it in. This leads to a bullish outlook on both dollar cash and gold equities.

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• The same UBS report delineates that gold stocks will outperform bullion as the Fed likely reflates the economy. The research firm’s Fed Action Model predicts when the Federal Reserve is likely to act when the reading falls below zero. Furthermore, their reasoning for gold stocks outperforming bullion is a result of two types of gold rallies. The first is a reflationary boom scenario where bullion outperforms gold stocks as commodity appreciation causes costs to rise. This leads miners to low grade operations and undertake high-cost expansions and M&As. That was the case in 2004 -2007 and 2009-2011. The second type of rally is characterized by risk aversion flows out of credit and equity and into treasuries. Costs at the mine fall as commodity currencies decline. Miners cut costs and restructure. With gold in a bear market, the stocks are financially and operationally geared. This was the case in 2001-2002 and during the last four months of 2008. This is the scenario the UBS team sees presently unfolding.

• Anita Soni of Credit Suisse believes gold mine production is likely to plateau in 2014 and decline over the medium term. This would be a tail impact of significant CAPEX from 2010-2012 that has now entered production and producer expenditures on growth capital. Gold mining exploration has also been cut. This supply shortage would push gold prices higher.

Threats

• India, the world’s biggest gold user after China, announced it will review bullion import rules after purchases in October jumped to the highest level this fiscal year. Though no indication has been given, any import restrictions could be a headwind for gold prices.
• The labor movement in South Africa has been thrown into turmoil after the November 8 decision by the Congress of South African Trade Unions to expel the National Union of Metalworkers of South Africa. The decision was opposed by seven of the 20 other affiliates and sets the stage for a fight over loyalty and membership dues of the remaining 1.85 million members. South Africa’s labor relations are the most hostile of 144 countries, according to the World Economic Forum, and the country had 114 strikes last year that resulted in 6.7 billion rand ($597 million) in lost wages.
• UBS cut its one-month gold target from $1,250 per ounce to $1,180 per ounce citing weak sentiment, light positioning and an extreme amount of shorts.

Energy and Natural Resources Market

Strengths

• Metals and mining stocks had a big comeback this week. Fears over a slowdown in global growth had depressed the metals space for the past few weeks, leading to oversold conditions. The S&P/TSX Capped Diversified Metals and Mining Index closed up 2.52 percent this week. Nevsun Resources rose 4.93 percent this week.
• Gold stocks continued their rally this week, despite falling oil prices stirring