Gold glides, stocks slide as Citigroup declares safe-haven rationale is back in vogue

Posted on

Gold ripped higher Wednesday to hit two-week highs as falling oil prices sent Asian markets and then U.S. equities into a fresh tailspin. Given the growing global turmoil, Citigroup has now substantially raised its forecast for bullion prices this year.

Having bounced higher off the 50-day moving-average 3 days ago, gold has surged back above $1,100 this morning, pushing back above the crucial 100-day moving-average, Zero Hedge reported. Silver has also broken above its 50-day moving-average.” Gold rose almost 2% to top $1,106 Wednesday, while silver was up 0.2% near $14.16.

Sinking oil prices helped tip the United Kingdoms FTSE 100 index closer toward bear territory, while the Dow Jones Industrial Average was down more than 500 points midday and the S&P 500 closed in on last-ditch technical support near its April 2014 lows. Meanwhile, the MSCI global stock index fell into official bear-market status.

Imminent recession in U.S.?: Signs of growth are few and far between at the moment, as the Consumer Price Index (CPI) for December showed that inflation slipped by 0.1%, and weekly earnings fell to their lowest level since November 2014, adding further pressure on the Federal Reserve to halt and/or slow its interest-rate hiking policy.

Moreover, industrial production has declined in 10 of the past 12 months, and according to fund manager John Hussman, this losing streak has never been observed except in the context of a U.S. recession.” Hussman concludes that a U.S. recession is not only a risk but an imminent likelihood, awaiting confirmation that typically only emerges after a recession is actually in progress.

Banker says now is worse than 2007: Given the plummeting crude prices, Royal Dutch Shell has announced that its planning to cut 10,000 jobs in its merger with BG Group. But other companies wont be so lucky in staying afloat. William White, chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements, told the Telegraph newspaper that the stresses in the financial system are worse than it was in 2007.

He added: Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.

Commenting on the bearish turn of events as the worlds wealthy elite meet in Davos, Switzerland, former Pimco bond guru Bill Gross, now at Janus, tweeted: Davos fiddles while global markets burn. Monetary policy increasingly ineffective. Fiscal stimulation non-existent.

Citi raises gold price target by 7.5%: All this uncertainty means that gold is on the rebound. We have a lot of fear today thats gathering steam, James Cordier of told Bloomberg. We definitely have some diversifying going on out of stocks and into fear trades, which is gold today. With the combination of a lack of inflation in the U.S. and the turmoil in the stock markets, theres no other way to look at the Fed right now other than theyre on hold.

Given the current lay of the land in 2016, Citigroup has turned bullish on gold in its new outlook for commodities, raising its price forecast by 7.5%. Golds safe-haven rationale is back in vogue, its analysts wrote, predicting an average price of $1,070. While geopolitical issues typically tend to be short-lived in terms of lending support to gold prices, we expect ongoing global macro concerns to lend support this quarter, added by a modestly more benign U.S. dollar outlook, they added.

In fact, gold is one of the few bright lights it sees among commodities. Declining expectations of global growth are exacerbating the results of oversupply across commodity markets, the analysts wrote in the Jan. 19 report.

With fear rising in markets everywhere, the odds are increasing that we might see more bullish gold forecasts like Citigroups popping up amid the ongoing carnage in equities and oil.