The Dow on 9/3/18 closed at 25,335 points, still below the 25,520 points of 2/2/18 after it lost 665 points. U.S. stocks had pared losses in mid-week after the White House said Canada and Mexico would be exempted from planned U.S. import tariffs on steel and aluminum. President Donald Trump went ahead with the imposition of 25 percent tariffs on steel imports and 10 percent for aluminum but had backtracked from pledges of tariffs on all countries – announcing “If you don’t want to pay tax, bring your plant to the USA.”
Would the bull market which begun circa mid-March 2009 be relentless since the Dow closed above 25,000 points on 4/1/18 and above 26,600 points on 26/1/18? The Dow closed at 24,946 points on 16 March 2018. The week beginning 19 March 2018 laid a setting whereby U.S. stock traders after a near decade of gains in U.S. stock prices the prospect of interest rate rises under the new Federal Reserve Chairman or a misstep by one of the market’s darlings could end the upshot party. A 9% two-day slide of Facebook wiped out $50 billion in its market capitalization.
Would U.S. Fed Chairman Jerome Powell push the economy into recession with aggressive rate hikes which would pare fiscal moves of tax cuts and infrastructure spending? If yields in benchmark 10-year treasuries hit 3% it’s a mental catalyst for markets to be on thin ice. The prospect of higher U.S. interest rates would weigh on non-yielding gold as well. In 1994, the Fed led by Alan Greenspan embarked on an epic tightening cycle, increasing short-term rates by 300 basis points within a year. The resulting carnage set Asia’s 1997 financial crisis in motion.
A large concern going forward lay with the U.S. on track for a trillion dollar deficit in 2019 and China buying fewer Treasuries. Larry Kudlow, the new head of the White House’s National Economic Council was known not to favor tariffs but would be supportive of President Trump’s tax cuts. This could be a light at the end of the tunnel in recent economics developments. Precious gold bucked its typical correlation with higher interest rate. After the Fed lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50% to 1.75% on 21/3/18 the Dow closed at 23,957 points, down 2.9% whereas gold slightly gained the next day starting off at $1332 per ounce. World gold price ended the week ending 23/3/18 at $1347 per ounce whereas the Dow slipped further on 23/3/18, the last trading day to 23,533 points, shedding another 424 points.
We had on the morning of 23 March increased our gold holdings by 2 grams and could have bought the additional 2 grams 1.5% lower if we had reacted two days earlier. All in all we had expended MYR1,100 or 56% of our hold money and our updated gold holding cost was MYR183.50 per gram.
Relative to our 12/1/18 previous update when we indicated we shall increase our gold holding when the EP (MYR equivalent of 1 gram of gold) was higher, the ringgit was even stronger than the greenback at 3.9630 per dollar on 22/3/18. The world price of gold had increased to USD1332 per ounce, whereas the local price was lower at MYR170.30 per gram (cimb sell quote). It appeared that world gold prices would not move much higher in the short range thus the EP would not beat the base of MYR176.64.
Due to the comparative strong ringgit, local gold price on 23 March was even below than the price on 28 December 2017 when we last bought gold. The EP of 170.94 was marginally higher because world gold price had increased over 3.5%. Expending our hold money on the trajectory of EP surpassing the base MYR176.65 we were still being prudent although slightly influenced by a “no gain without calculated risk taking” mantra.
Yuan-denominated gold futures had been traded on the Shanghai Gold Exchange since April 2016 and launches in Hong Kong were efforts by China in seeking to internationalize its currency. The ensuing contracts had been only moderately successful. In addition, would China’s plan to have oil-futures trading in the yuan, which would be fully convertible into gold on the Shanghai and Hong Kong foreign exchange markets have a positive impact on precious gold regaining its true value in world markets?
There was speculation that if China were to buy into the pending IPO of Saudi Aramco the pricing of Saudi oil could shift from U.S. dollars to yuan – based on a September 2017 report (https://asia.nikkei.com/Markets/Commodities/China-sees-new-world-order-with-oil-benchmark-backed-by-gold?). Only then would world gold price breach the USD1350 per ounce level and beyond whereby the EP would be rocketed, hoping that the workings of the Shanghai and Hong Kong foreign exchange markets would make precious gold glitter in the second half of 2018.
Circa mid-January 2018 there were reports of “Trump’s going to be best buddies with Kim Jong Un”. Trump professed to be “a very flexible person: “and then all of the sudden somebody’s my best friend.” Indeed it is interesting times we live in. North Korea apparently was ready to talk about giving up its nuclear arsenal based on reports circa 6 March on developments of a South Korean delegation to the first-ever talks with Kim.
President Trump called it a positive development in relations with Kim, but also stressed that it was because of a position of strength. “I think that they are sincere, but I think they are sincere also because the sanctions and what we’re doing with respect to North Korea, including the great help that we’ve been given from China,” Mr. Trump was quoted saying. “The sanctions have been very, very strong and very biting.” Kim pledged to refrain from further nuclear or missile tests and South Korea’s national security chief announced that Trump and Kim would meet by May.
The outcome of the 4 March Italy elections was bad for the European Union. The winning parties were euro-hostile. 5-Star movement took around one third of Italians’ votes. La Lega claimed the right to rule after its center-right alliance won the largest bloc of votes. It won around 17 percent, ahead of Silvio Berlusconi’s Forza Italia (Go Italy!) party which garnered only 14 percent of the vote at the election. The center-right coalition, which included other smaller parties took around 37 percent.
League leader Matteo Salvini Matteo, a friend of France’s far-right opposition leader Marine Le Pen had a slogan “Italians first”. A League deputy, Paolo Grimoldi said Italy should be able to choose who could come and lived in the nation. “It’s better to take immigrants from Ukraine . . . they are Christians, or from Belarus, they are not Muslims and they cannot be terrorists. I want to have the right to make choices. I think in this moment, we don’t need immigrants.”
Casa Pound chief, Massimo Trefiletti proudly proclaimed himself and his party as fascists. For the future, he wanted Italy to turn its back on the EU, close its borders and deport all the immigrants. It was supported by a tiny minority of Italians but its nationalist, anti-immigrant rhetoric was being echoed by other parties. Indeed the EU cross member nation rules did not jive with sovereign nation-states’ unique homeland aspirations, social-economic priorities and fundamental sovereign rights of actual control of movement across a specific state’s borders.
Circa 6 March 2018 upshot report of Eurozone members stance against French plans for greater economic union meant French President Emmanuel Macron championing a eurozone budget and a single finance minister for the bloc was not value added. The Netherlands, Sweden and Ireland were among the eight countries against sweeping monetary and economic integration.
On 1 March 2018 the UK’s members of parliament blasted EU officials for trying to ‘annex’ Northern Ireland as Theresa May rejected the Brussels proposal that Northern Ireland should follow their customs union and single market rules. In the preceding month the British Prime Minister had started to scout for new trade relationship beyond the European Union. President Xi Jinping told Theresa May on 1 February 2018 on her China visit that their countries should take trade ties to “a new level” as London scouted the globe for fresh partnerships after its European Union exit. Don Q kindly and truly related to the “no quitter” Theresa May leadership and her vision of UK’s post-Brexit landscape.
The British people had voted to take back control of their nation’s money, their borders and their laws. The UK trade initiative simply pointed to its discretion of trading across borders in the nation’s interest and jobs. President Xi’s support of a “golden era” of relations between the two countries complemented Mrs Theresa May”s outward looking stance in leaving the European Union. This development was one startling ‘rogue windmill attack’ on old world order in the mould of the 21 Century Don Quixote and certainly rounded up the peculiarly rogue windmill epithet.
The developing new world order event referencing the rogue windmill epithet was an extract from the yet to be published book’s post script Addendum E. The addendum also rambled about an opinion piece (http://www.atimes.com/article/trumps-courage-cunning-confound-opponents/) which concluded that President Trump “gets top marks for courage and cunning, and has emerged against (nearly) all expectations as a formidable figure in American politics.” The Don would not miss out that Trump’s political virtuosity was cloaked in his mastery of getting results though loud practical means. His tax cut result in the U.S. congress might be flawed but it certainly was better than nothing. His highhanded trade war with China would improve U.S. access to Chinese markets – a practical breakthrough no other western world leader would even dare dream of accomplishing.
China’s quiet negotiations with the United States also showed its practical virtuosity. On internationalizing its currency, China’s crude futures made a roaring start on Monday 26 March 2018 and the Shanghai International Energy Exchange (INE) global price benchmark would be alongside Brent and WTI crude.
Battered shares worldwide due to the daring Trump’s trade war rambling eased when U.S. Stocks recovered on 26 March 2018. In early trading the Dow was up 1.7%, S&P 500 gained 1.6% and the Nasdaq Composite rose more than 2%. The two countries were willing to negotiate tariffs and trade imbalances. As stocks pulled back, gold surpassed $1355 per ounce and remained above our $1350.upward bias price threshold level.
Although the EP was comparatively low we increased our gold holdings by 2 grams to lower our average gold costs to MYR180.57 per gram. The Shanghai INE launching of its financial oil instrument was a positive new world order development.
U.S.stocks closed higher than 2.7% as China’s Premier Li Keqiang pledged to ease access for American businesses. The Nasdaq Composite rose more than 3% to 7220 points. The United States had asked China in a letter last week to cut a tariff on U.S. autos, enable U.S. firms greater access to the Chinese financial sector and to encourage greater purchase of U.S.-made semiconductors.
On another front, Bloomberg reported that North Korea leader Kim Jong Un visited China. Perhaps this first known overseas trip since taking power in 2011 would set the stage for the potential summit with U.S. President Donald Trump to be held in there.