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Which safe-haven to choose in 2020 – Gold or the Mighty Dollar? In times of uncertainties – be it economical, political or policy-related, investors generally seek safety with haven assets like the US dollar, Japanese Yen, Swiss franc or Gold. Our attention today is on Gold and the US dollar, both of which have had an interesting start to the year so far.

Gold Major equity indices reached fresh record highs in January. Yet, gold price remains in elevated levels around $1,550. It is a situation of “cautious” risk appetite.

The narrative is simple. Investors are still navigating in an environment with high levels of uncertainties, despite easing trade tensions and receding recession fears: QE and record low-interest rates Geopolitical tensions Global growth uncertainties Growing global debt China’s commitment to Phase One Major central banks are pumping money into the economy through quantitative easing and are reducing interest rates to stimulate the economy, hence driving demand for riskier assets. Hard assets like gold are therefore generally sought as investors are hedging against poor fundamentals and the long-term headwinds.

Currently, the fears that the Coronavirus may spread to more countries and dent economic growth are also boosting the short-term outlook for gold. US Dollar Index We are seeing a stronger US dollar but the greenback acting as a safe-haven will likely face some limitations. The Federal Reserve cut interest rates three times last year, mainly due to weaker global growth and trade tensions.

Lower rates and still a stronger US dollar? The US dollar is gaining a competitive advantage over its peers in the currencies market. The US economy is stronger and the Fed is considered to be less-dovish than other central banks.

While some might still need to reduce interest rate further in 2020, the Fed is expected to remain on pause with the expectations of being among the first central banks to be able to start hiking again in 2021. The Tandem Given that gold is internationally quoted against the US dollar, any appreciation or depreciation of the greenback will generally cause an inverse reaction in the price of gold. A strong dollar will therefore negatively affect the price of gold.

Since the beginning of the year, instead of a negative correlation, both the US dollar Index which represents the performance of the greenback against a basket of currencies and the XAUUSD pair are moving in tandem. An alignment which is unusual but occasionally occurs during periods of heightened geopolitical and economic risks. Source: Bloomberg Quantitative Easing and Central Bank Gold Hoarding Quantitative easing is a controversial and unconventional monetary measure used by central banks to pump money into their economies.

Recession fears and lack of inflation growth despite a decade of low- interest rate have forced central banks to reconsider QE in 2019. The ECB has resumed the QE process while the Fed is providing liquidity in the repo markets. While the Fed denies that the interventions are not technically a new phase of QE, such liquidity interventions in the markets instilled fears of a struggling global economy.

As a result, QE is triggering a rally in gold. The Favourite Mighty Dollar At the same time, the US dollar is being favoured in the currencies market as it retains a positive interest rate differential with many countries. Overall, investors are looking for the next best alternative.

The US economy is not shielded from the global headwinds, but are perceived as performing better in comparison to other major countries. Is Gold a Better Safe-Haven? As major economies engage in easing monetary policies, central banks are also piling up on gold.

Emerging markets like China and Russia have also increased their gold reserves over concerns on currencies like the US dollar and Euro. Why? To diversify away from the US dollar?

A stock rally and a stronger dollar do not seem to have tamed the rise of gold. The stock rally is being driven by the QE process, easing trade tensions and receding recession fears, while the US dollar is being favoured over its peers. However, we note that a partial trade deal and a global economy poised for a mini-recovery could limit the potential upside of the US dollar.

The “by-default” strengthening of the US dollar could limit the effectiveness of the actions enacted by the Fed to shelter its economy from global headwinds. Also, the global growth narrative is dependent on China’s commitment to Phase One. Both are moving together, but the magnitude is different.

The current sentiment is positive yet fragile due to the uncertainties, which is creating a favourable environment for the precious metal. About GO Markets GO Markets was established in Australia in 2006 as a provider of online CFD trading services. For over a decade we have positioned ourselves as a firmly trusted and leading global regulated CFD provider.

Traders can access hundreds of CFD instruments including Forex, Shares, Indices and Commodities. Follow us and keep up to date with the latest market news and analysis.

Tyson Foods & Skyworks Earnings Reports Tyson Foods and Skyworks are among the two major earnings results released on Monday. The meat processor reported its quarterly results before the open while Skyworks Solutions issued its reports after market close. Tyson Foods, Inc. (NYSE: TSN) Tyson Foods is one of the largest processors and marketer of chicken beef and pork.

The company is considered as one of the world’s largest food companies and a leader in protein. The lockdown measures have seen temporary plant closures, reduced, member attendance, and supply chain volatility, which have forced the company to adjust its product mix and redirect products accordingly. Second Quarter Highlights: GAAP EPS of $1.00, down 15% from the prior year; Adjusted EPS of $0.77, down 36% from the prior year GAAP and Adjusted operating income of $501 million Total Company GAAP and adjusted operating margin of 4.6% Record total Company sales of $10,888 million Secured $1.5 billion term loan facility Tyson Foods has welcomed the actions of the government to strengthen the food supply chain and prioritising support for meat and poultry processors last week, but the company is still anticipating to operate under multiple challenges related to the pandemic which is expected to drive operating costs higher and negatively impact volumes for the remainder of fiscal year 2020.

Given the uncertainty, the Company withdrew its annual guidance and warned of shortages of protein in grocery stores across the US, mainly due to the closures of facilities and a lack of workers. Also, almost 900 employees at a processing plant in Indiana were tested positive for COVID-19. Amid a gloomy outlook for the meat market, the shortages have driven prices of protein like pork and beef higher.

Source: Bloomberg The company’s share price which has remained quite resilient in the month of April tumbled by almost 8% on Monday to $55.32. Skyworks Solutions, Inc. (Nasdaq: SWKS) The semiconductors manufacturer is an innovator of high-performance analog semiconductors connecting people, pace and things. The company’s wireless technologies are playing a key role as the world goes remote.

Leveraged our Sky5® platform across flagship 5G handset launches at Samsung, Oppo, Vivo, Xiaomi and other Tier-1 players Expanded our technology reach across our customized Diversity Receive platforms, with new 5G-centric solutions being deployed across a growing set of customers Ramped wireless remote patient monitoring systems with GE Extended our market leadership in Wi-Fi 6 home and enterprise-grade gateways at Cisco Enabled home security systems at Honeywell Accelerated content across multiple automotive leaders including Volkswagen, Renault, Hyundai and Nissan Launched asset tracking and fleet management solutions at Juniper and Blackberry Powered 5G mobile hotspots with Verizon and AT&T, supporting work-from-home trends Supported 5G Massive MIMO and small cell base station deployments across the U.S., Europe and Japan The company reported earnings of $1.34 per share on revenue of $766m which came above estimates. However, Skyworks provided a weaker guidance outlook for its third quarter between $670m and $710m in revenue. Its share price struggled to find a firm direction in after-hours trading.

Walt Disney, Activision Blizzard, and Beyond Meat are among the few that are expected to report earnings on Tuesday. After the warnings of shortages by the meat giant, Tyson Foods, Beyond Meat will be on investors’ watchlist.

Monday started on a buoyant note as the weekend negotiations between the US and the Chinese officials on structural issues, including intellectual property protection, technology transfer, agriculture among others were productive which encouraged President Trump to extend the 1 st March deadline. Asian stocks and trade-sensitive currencies like the Antipodeans are flashing green. Given that the deadline has been extended, the chances of a trade deal between the two world largest economies also rises which is boding well with investors.

MSCI Asia Pacific Index rose by 0.5% as of writing. Asian stocks edged higher as investors are cheering up the latest signs of progress. Source: Bloomberg Terminal In the Australian share market, the real estate sector was the biggest dragger on the ASX today.

However, the broad optimism in the market helped the index to close in positive territory despite paring gains in the afternoon trade. USDCNH – The Yuan is climbing higher sending the USDCNH pair to its lowest level since July 2018. USDCNH (Weekly Chart) Source: GO MT4 The Antipodeans being trade-sensitive currencies are finding buyers on trade optimism.

However, we can see that AUDUSD and NZDUSD are finding resistance as domestic fundamentals are keeping a lid on the gains. After a strong Retail Sales figures, the NZD pairs gapped higher on the open. However, the pairs are unable to keep the bullish momentum due to the weak fundamentals.

On the technical side, the pairs are in the overbought conditions as per the RSI. NZDUSD and AUDUSD (Hourly Chart) Source: GO MT4 The move in the financial markets in the Asian session following the “delay” announcement has not been huge, but it lifted sentiment and brought relief to the markets!

What do we know about the state-owned oil giant - Saudi Aramco? World’s largest company World’s biggest state-owned oil and gas companies World’s cheapest oil producer A leader in oil production Second-largest proven crude oil reserves All of the above would probably make this upcoming Initial Public Offering (IPO) one of the most hyped IPOs of all time. In 86-year of history, Saudi Arabia has officially stated its plan to float the company on the Riyadh stock exchange.

After first being announced in 2016, the Saudi Aramco officially confirmed the IPO on November 3. However, the size and scope of the IPO were unknown so far. On Sunday, Saudi Arabia’s officials have officially launched the IPO and confirmed that the domestic listing will take place in December.

Vision 2030 The primary purpose of the IPO is to diversify Saudi’s economy and its reliance on the oil industry. After the fall in the oil prices in 2015, Crown Prince, Mohammed bin Salman’s introduced the Vision 2030 which encompasses the desire to reinforce and diversify the capabilities of Saudi’s economy. The Prince has designed its vision on three main pillars: Saudi Arabia’s status as the heart of the Arab and Islamic worlds.

Becoming a global investment powerhouse. Transforming the country’s strategic location into a global hub connecting Asia, Europe and Africa. Hence, transforming Aramco from an oil-producing company into a global industrial conglomerate is a key step in raising funds for the Vision 2030.

Lacklustre International Response Even though the national oil company do have a high degree of independence, the Crown Prince has taken a more active role in the company over the years. As the purpose of the IPO is to raise funds to follow the plans to diversify the economy, the money will not be going to the company, unlike standard IPOs It is, therefore. a distinct consideration for the Aramco investor Bankers were unable to convince many international money managers of the merits of the deal which prompted Aramco to keep the IPO local. Shares will not be marketed in the US, Canada and Japan as originally expected.

The Domestic IPO On Sunday, Aramco finally provided details on what could be the world’s biggest IPO. Currently, the Chinese online retail giant, Alibaba holds the record with an IPO of $25 billion. Valuation Aramco valued the company between the $1.6 trillion to $1.7 trillion which was below their Crown Prince’s valuation of $2 trillion.

The new valuation implies that the investors will yield a dividend lesser than those from other leading oil and gas companies. A Smaller Stake Aramco decided to sell only 1.5% of its company on Riyadh’s Tadawul exchange which amounts about half of the amount that had been considered at an indicative price range of 30 Saudi riyals ($8.00) to 32 Saudi riyals per share. At the top of the range, the company could raise as much as $25.60 billion beating Alibaba’s capital raise in 2014.

The IPO will be split into two tranches: 5% will go individual investors who will have until November 28 to sign up for the IPO 1% to institutional investors who will have until December 4 to subscribe. Despite the lower valuation, a smaller stake and an IPO limited to local investors, Saudi Aramco is confident that they will have sufficient Middle Eastern institutional investors and local demand for a successful IPO. Setbacks in the Oil Market Oil Demand Oil prices have slumped in the last few years and have more than halved since mid-2014 mainly because of: A glut in global supply A lacklustre demand The dramatic fall in prices has forced OPEC members to cut back production to help stabilise supply and cushion the fall in prices.

US shale producers, geopolitical risks, tensions in the Middle East, trade tensions, and slowing global growth are key factors affecting the supply and demand dynamics in the oil market. Oil and Gas Divestment – Climate Activism Another crucial factor that has caused a shift in the oil market is the growing movement towards climate change which are subsequently pushing investors away from the oil and gas sector. The industry has faced intense pressure from activists and we might see the pressure intensifying as such high-scale IPO will undermine their fight against the climate crisis.

Saudi Aramco is among the top carbon dioxide and methane emitters. Those concerns are forcing portfolio managers to divest from oil and gas companies to embrace more sustainable investment. Drone Attacks The crippling attacks have caused major damage to Saudi Aramco’s facilities in Abqaiq and Khurais.

Even though the company recovered quickly and resumed production, investors are taking note of the nation’s vulnerabilities to attacks. As of writing, it was also reported that Yemen’s Houthi rebels has seized Saudi ship carrying oil rig. At a time where Saudi Arabia wishes to diversify and entice foreign investors, keeping the IPO as a local affair has undermined the efforts to open its economy to the world.

The much-muted details of the IPO, setbacks in the oil markets and the gruesome killing of Jamal Khashoggi have trigger hesitations from international investors to buy Saudi Aramco at full price. Saudi Aramco is a leader in the industry and will probably be able to cope with the current challenges of the industry until the industry is faced with the situation of peak oil demand. Oil Prices and the IPO The upcoming IPO will be one of the key determinants of the immediate price action of oil.

The public offering and the OPEC meeting are intertwined and oil traders should monitor these events carefully. OPEC’s de facto leader is Saudi Arabia and it is reported that the Saudis are set to push OPEC countries to make deeper oil cuts to keep oil prices higher. On the trade front, even though there are some conflicting trade headlines, there is much optimism on the trade front to keep oil prices from falling to September lows.

All-in-all, those two main events provide some upward room for oil prices.

Investors generally piled-up in the Gold and the US dollar as those assets are viewed as safe-haven during times of crisis or uncertainties- be it economical, political or policy uncertainties. 2020 has been a year of extreme uncertainty and volatility which saw the world battling an unprecedented and paralleled health and economic crisis in modern times. Gold With the passing months and fears of second waves of an outbreak, the predominant uncertainty for the markets is when will the world recover from both crises. In such an environment of doubt, investors are either hedging or seeking safety from volatile investments with haven assets like the gold.

The precious metal has been on a tremendous rally since the pandemic rattled the markets. Aside from the economic and health crisis, geopolitical tensions, massive stimulus packages and the uncertainty on the US election have fuelled the rally in gold. The XAUUSD pair has even traded around the elevated levels seen during the financial crisis and reached a high of $2,075 in the month of July.

Source: GO MT4 Since August, the XAUUSD pair has been trading within a range as investors digested some positive vaccines updates, improving economic data and easing lockdown restrictions. The indecisiveness of investors is reflected by the Doji candle on the monthly chart found at the top of the upside trend which suggested a sign of possible reversal of price direction. Source: GO MT4 Technical Bearish Signal Recently, the gold has plummeted and flashed a bearish signal after dropping below its 50-day moving average.

The move has flagged further potential downside risks for the precious metal. Generally, the gold is quoted in dollar terms and moves in the opposite direction with the US dollar. As the greenback gathers strength, the XAUUSD pair is struggling to firm to the upside despite the geopolitical and economic uncertainties.

Most importantly, the pair broke the key psychological level of $1,900 to trade around the $1,865 level on Wednesday. Even though gold may be poised for further downside dragged by the strengthening dollar, the precious metal remains at elevated levels. Traders are to keep monitoring geopolitical headlines, central banks decisions, inflation levels, and leading economic data for fresh trading impetus.

The US Dollar At the start of the pandemic, investors rushed to the mighty dollar when they were confronted with the scale of the crisis. However, as the outbreak furiously spread across the globe, the US soon emerged as the country hit the hardest. The crippling effect of the pandemic on the US economy has caused the US dollar to lose its haven status and its preference over its peers.

Also, while the US was battling a political deadlock, the European Union has shown an unprecedented sense of unity which prompted investors to shift their focus away from the greenback to riskier currencies. Source: GO MT4 However, the US dollar made an impressive comeback this week. As Europe grappled with a second wave of an outbreak which may give rise to further lockdown restrictions, the US dollar is seen rising over the virus fears.

At the same time, a rout in the technology sector and a fragile risk sentiment in the stock market has helped the greenback to regain its safe-haven status. Major US equity benchmarks retreated sharply by more than 1.5% on four occasions since the end of August. Technical Bullish Signal On the technical side, the US dollar index broke out of its bearish downtrend to test the 50-day moving average on the back of its haven status amid the financial market volatility.

Recently, central banks have been more dovish which has also provided some support to the US dollar. We have seen more central banks looking at negative interest rates and other easing monetary policies as viable options. At such inflection point for the US dollar and the Gold, the guidance from central banks and governments will continue to drive the action in those haven assets while investors await news and updates on the vaccine front.

The Perfect Storm Brewing in the Oil Market The oil and gas industry has been undergoing significant challenges due to the structural shift within the industry. A pandemic-induced economic downturn and an oil price war have now added another layer of uncertainty to the oil markets. Tensions between Saudi Arabia and Russia have disrupted the stability that the oil industry requires to be able to remain afloat during such difficult times.

Demand and Supply Shock The oil market is facing both a demand and supply shock, simultaneously. In other words, there is a flood of supply at a moment of diminishing demand. Demand: Different forms of lockdowns across the globe due to the pandemic means empty roads, grounded aircraft, plunging car sales and disrupted supply chains.

These industries are key consumers of oil. Supply: An oil price war between Saudi Arabia and Russia was the tip of the iceberg and triggered the flash crash in March. The oil kingdom raised output to full capacity to fight a price war with its rivals, destabilising the oil market at a critical time during the coronavirus pandemic.

Tensions among oil producers are not uncommon but crude oil prices experienced steep declines, due to weak fundamentals and geopolitical tensions. Multi-year Low The flash crash in March has nearly halved crude oil prices. During the month, trading was highly volatile - WTI and Brent Crude traded more than 45% lower to a multi-year low at $20.50 and $24.

Stimulus Packages Brought Some Stability The bold actions from central bankers and governments to implement new and massive monetary and fiscal packages to stem the downturn helped the oil market from a temporary bottom. As of writing, WTI and Brent Crude have stabilised and have consolidated around the $22 and $26 levels, respectively. USOUSD AND UKOUSD (Monthly Chart) Source: GO MT4 An Oil Storage Problem Global activities are slowing down on a massive scale, sapping demand while big producers like Saudi Arabia and Russia tugged in a price war are raising productions.

At this rate, giant oil producers are set to run out of storage capacities within a few weeks or months. The US and Saudi Arabia Negotiations The oil market had a breather this week. Risk sentiment has improved, and it was also reported that the US and Saudi Arabia are in discussions to end the price war and bring some stability to the oil markets.

Investors will rely on political intervention to halt the freefall. An oil storage problem, higher storage costs, faltering demand and a significant rise in production are creating a perfect storm for the oil market.