Speaking Friday, New York Fed President William Dudley said that a gradual approach to further interest-rate increases is warranted. Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted slightly to the downside, he said.
And on Thursday, at a conclave that saw the current and previous three Fed chiefs incumbent Janet Yellen along with predecessors Ben Bernanke, Alan Greenspan, and Paul Volcker all on one stage for the first time ever, Greenspan reiterated concerns about U.S. economic vulnerabilities.
The major problem that exists is essentially the issue that productivity growth over pretty much the spectrum of all economies has been under 1% a year for the last five years, he said. Meanwhile, Yellen denied the U.S. economy is in a bubble but said its suffering from a drag from the global economy.
Tidal wave of default feared: However, perhaps Yellen is in denial as one of the worst corporate earnings season in recent memory gets under way, and first-quarter GDP estimates are well under 1% from numerous analysts. For anyone seeking a harsh dose of reality, look no further than Societe Generale strategist Albert Edwards, who sees a U.S. recession looming.
Whole economy profits never normally fall this deeply without a recession unfolding, he argued. And with the U.S. corporate sector up to its eyes in debt, the one asset class to be avoided even more so than the ridiculously overvalued equity market is U.S. corporate debt. The economy will surely be swept away by a tidal wave of corporate default.
Trader bets $2 million on gold: Given this uncertainty, gold remains a go-to asset. And some investors are putting their money where their mouths are. CNBC reported Friday that one trader bet more than $2 million that the gold could rally 10% in one month. The trader purchased 10,000 July 125-strike calls for $2.29. Since each call option accounts for 100 shares, this is a $2 million bet that the GLDwill rise above $127.30 by July expiration.
Meanwhile, another major investment bank has revised its price targets now that gold is showing little inclination to yield much of its roughly 16% gain so far this year.
Bank lifts 2016 price average by 10%: According to metals analyst Lawrie Williams, Credit Suisse has lifted its price target to as high as $1,350 for the first quarter of 2017. It also sees the metal averaging $1,270 this year (up 10% from its previous forecast) and $1,313 in 2017.
Its silver forecast also has increased, rising 6% to $16.26 for this year and 3% to $16.50 for 2017.
The bank cited declining real interest rates, a slower-going Fed, a weaker dollar, continuing ETF inflows, and ongoing central-bank purchases as bullish factors.
Range expansion signals bear is over: Meanwhile, market analyst Jesse Felder cited famed billionaire investor Paul Tudor Jones in arguing that the bear market for gold is over.
When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion, Jones wrote. And Felder sees golds current chart pattern as another such range expansion, only this time it is bullish rather than bearish. This doesnt mean that gold will immediately continue higher but it does suggest that the recent rally is probably more than just a flash in the pan.
And Forbes contributor Tim Treadgold cited billionaire Warren Buffetts investing philosophy of buying valuable assets when the prices are down. For Treadgold, central banks have been doing just that, buying 483 tons of gold in 2015, and such interest from those big players bodes well for golds future.
If a big investor in any market is a net buyer, then the trend is more likely to be up than down, and in gold there is no bigger force than the worlds central banks, he wrote.