From Constantinople to Istanbul, Turkey Has Never Been Better

  • decision on June 5. Any disappointment here would likely lead to a sell-off in the equity market.
  • Housing data remains disappointing overall. If growth does not accelerate, the robustness of the broader economic recovery could be threatened.

The Economy and Bond Market

Treasury bond yields resumed their fall this week. This was particularly true on Wednesday when 10-year Treasury yields fell 7 basis points and traders and analysts were hard pressed to explain exactly why. The most plausible explanation seemed to be money flows into Treasuries from Europe and more specifically eurozone banks. These banks are moving money ahead of the ECB’s policy decision next week, which could lead to negative interest rates on excess reserves held at the central bank.

10-Year Treasury Yield
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  • Durable goods orders in April were much better than expected, especially considering that March was revised significantly higher. This bodes well for the economic snap back story in the second quarter after posting lackluster economic results as poor weather conditions had a significant impact on activity.
  • Consumer confidence improved modestly in May as both the Conference Board’s consumer confidence index and the University of Michigan survey of Consumer confidence showed modest increases.
  • Initial jobless claims fell by 27,000 last week and while the data can be lumpy week-to- week, the trend remains lower.


  • First quarter GDP fell one percent. On the surface this sounds terrible but virtually all of the negative revision was in inventories (weather related), which will likely be built during the second quarter.
  • Housing data continues to be mixed but the trend is a bit worrying. Mortgage loan applications fell for the third straight week and a Freddie Mac index indicated that less than half of the housing markets surveyed were improving, vs. 90 percent last year. Pending home sales were also disappointing in April and fell 9.4 percent year-over-year.
  • Personal spending fell 0.1 percent in April, which was the first decline in a year.


  • All eyes remain fixed on the ECB’s June 5 meeting, as the ECB is expected to ease monetary policy by potentially taking the rate on excess reserves at the central bank into negative territory.
  • With a heavy calendar of economic data out next week, key indicators to watch include ISM manufacturing on Monday and the employment report on Friday.
  • There are many moving parts to the taper decision and while the Fed began the process it is very possible that tapering could be delayed if the economy stumbles.


  • Long-term bonds have posted strong returns year to date and with economic data looking supportive, a modest sell-off wouldn’t be surprising.
  • While the ECB is moving toward easing, UK policy makers at the Bank of England are considering raising interest rates as the housing market has been very strong along with retail sales.
  • Housing data remains mixed and the spring selling season has disappointed so far. If activity doesn’t pick up soon, housing may not be the positive catalyst many were expecting for 2014.

Gold Market

For the week, spot gold closed at $1,249.73, down $42.83 per ounce, or 3.31 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, declined 3.85 percent. The U.S. Trade-Weighted Dollar Index rose 0.01 percent for the week.

RGA Investment Advisor 2Q20 Commentary: The Tale of Two Markets

RGA Investment AdvisorRGA Investment Advisor commentary for the second quarter ended July 2020, titled, "The Tale of Two Markets." Q2 2020 hedge fund letters, conferences and more In our Q1 2019 commentary we expressed how “COVID-19 will kick off one of the most profound reshaping of our world any of us will see in our lifetime,” accompanied Read More

Date Event Survey Actual Prior
May 27 U.S. May Consumer Conf. Index 83.0 83.0 82.3
May 27 U.S. April Durable Goods Orders -0.7% 0.8% 2.5%
May 29 U.S. Q1 GDP Second Reading -0.5% -1.0% 0.1%
May 29 Japan April Nationwide CPI 3.4% 3.4% 1.6%
June 2 Germany May Consumer Price Index 1.1% 1.3%
June 2 U.S. May ISM Manufacturing 55.5% 54.9%
June 5 ECB Interest Rate Decision 0.1% 0.25%
June 6 U.S. May Change in Nonfarm Payrolls 218K 288K


  • Palladium rose to the highest since 2011 as the South African strike reaches its 18th week. The fundamental outlook for the metal remains positive given that demand is expected to beat supply by 1.6 million ounces this year. Platinum on the other hand has not reacted as strongly despite having a similar fundamental supply-demand imbalance. With the South African strike affecting 40 percent of global production for over four months, the supply deficit is expected to reach 1.2 million ounces, the most ever according to Johnson Matthey, the world’s largest refiner. In addition, more and more platinum continues to be locked in ETF products, as demonstrated by the chart below. Given this scenario, and that of producers and refiners drawing from their six-month inventories, it is likely that the second half of the year brings either a shortage or a restocking period, both positive for the metal.

Platinum Prices May Spike on Strikes and ETF Buying
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  • With the London gold fix under fire following fines to Barclays for attempted manipulation, China is seeking to challenge the dominance of New York and London in gold price setting. The government-backed Shanghai Gold Exchange (SGE) has asked a number of international banks to participate in a planned global trading platform. The SGE is already the world’s largest physical exchange market, despite being domestic focused only. The new plan will open up an international platform for foreign brokers and producers.
  • Midway Gold announced substantial resource growth at its Gold Rock Project in Nevada totaling 513,000 ounces of 0.79 gram per tonne ore. The company plans to pursue a preliminary economic assessment (PEA) to determine the viability of the project, which has the added benefit of being located a mere 10 kilometers from the Company’s construction-stage Pan Project. Calibre Mining announced that IAMGold has signed an option to earn up to 70 percent interest in the company’s Eastern Borosi Project in Nicaragua. Under the agreement IAMGold has to meet required exploration spending and a number of cash payments to Calibre over the next six years, as it advances the Borosi gold-silver-copper concessions.


  • Gold dropped the most in 10 weeks as U.S. macroeconomic data was supportive for economic growth. Despite a weaker than expected first-quarter GDP print, the markets focused on the unexpected rise for durable goods and the pick-up in consumer confidence. The yellow metal also weakened after April Hong Kong gold exports to China fell to 67 tonnes from the prior month’s 85 tonnes. It should be noted, however, that Hong Kong gold net exports to China in the first four months of the year rose 18 percent relative to the same period last year.
  • Citigroup analysts in its Global Gold Book argue there are limited upside catalysts for gold prices in the near term, even with the ongoing tensions in Ukraine. The bank’s analysts were bearish on gold companies, arguing companies are focused on making ends meet in the near term, ignoring the fact that 75 percent of the industry is burning cash. “We conclude that odds are firmly against a gold company delivering long-term shareholder value,” said lead analyst Johann Steyn.
  • Gold Fields Ltd. halted most production activities at its South Deep mine in South Africa following the deaths of two workers. The work stoppage will last until the company reassesses operations at its underground workshops, where one of the accidents occurred. Gold Fields, which also operates the Tarkwa and Damang mines in Ghana, appealed to the Ghanaian government for tax relief as mines in the country struggle to turn a profit at current gold prices. The relief is unlikely to be granted given the government is currently battling a 10.8 percent fiscal shortfall.


  • Investors should boost their exposure to gold equities according to the most recent report by Macquarie commodities team. In the most recent update, gold analyst Matthew Turner expects that 2014 will mark the trough in the gold price and anticipates annual gains of over 4 percent per year to $1,440 in 2017. Similarly, gold equities should make annualized price gains of at least 10 percent over the next 3.5 years according to the report. A contrarian recommendation to increase gold exposure makes sense at this time because the improving U.S. economic perspective is already priced in, and the consensus view of 3 percent or higher real GDP growth through end 2015 is too optimistic. The number of units in the Market Vectors Gold Miners ETF has been remarkably resilient this year, leading us to believe that gold stocks have found stronger hands and we are closer to a trough.

Market Vectors Gold Miners ETF Shares Outstanding Stabilize
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  • Financial expert and best-selling author James Rickards’ latest book predicts we are closing in on the collapse of the monetary system. In his book, Rickards suggests the monetary policy mistakes have already been made, which have injected instability in the system, leaving us waiting for a catalyst to trigger the collapse. This catalyst could be anything from a natural disaster to a failure to deliver physical gold. On gold specifically, Rickards argues that the blatant gold price manipulation will continue until a physical shortage prompts a buying panic and a short squeeze.
  • India’s central bank has relaxed restrictions on banks seeking to offer gold loans and permitted more entities to import the precious metal. Gold jewelers in the country argue this is the first in a series of measures the new government is taking to ease gold imports into the world’s second-largest consumer. The 10 percent import duty on gold has encouraged smuggling and driven up physical delivery premiums as high as 23 percent over the international price. After plunging 20 percent last year, Indian gold imports could rise 7 percent this year, thus exceeding the World Gold Council’s forecast.


  • The U.S. dollar may be heading higher after European Central Bank (ECB) President Mario Draghi further reinforced the market’s belief that that the bank will take action to stave off deflation. The resulting market action has continued to compress E.U. yield spreads to the U.S. As a result, funds are likely to start flowing back to the U.S. treasury market, thus providing support for a stronger U.S. dollar. A stronger U.S. dollar has traditionally had a negative correlation with gold prices.

Converging E.U. Periphery Yields to Strengthen U.S. Dollar
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  • South Africa new Mines Minister Ngoako Ramatlhodi, sworn in this week, is widely