Gold is a highly speculative metal. It is a different type of asset as it isn’t based on an income stream like most shares, property, bonds and cash. In addition, the supply of every ounce produced still exists and can come back on to the market, however unlikely. Herd mentality plays a huge role in the gold price, leading to a volatile ride. The gold price goes through long term upswings and downswings. The main role for gold in a portfolio is as a hedge against inflation or currency weakness. Having said that, commentators are excited as Gold is now at all-time highs.
Australia’s CPI reading was -1.9% for the June quarter. Interestingly the government declaring childcare as “free” led to a 1.0% reduction in the CPI alone. Fuel prices deducted another 0.7% and the delay in health insurance increases (phew!) also contributed.
After containing its own Coronavirus by the end of February, China restarted its economy in the second quarter and now leads the global economic recovery. As we know we started with a health crisis which turned into a supply crisis. Now with China’s factories fully up and running, demand for their goods and services becomes the issue.
China’s economy snapped back in the second quarter, publishing real GDP growth of 3.2% year over year, up from -6.8% in the first quarter. There is conjecture that the official figures may be inflated somewhat, however this isn’t news – those numbers are always contrived.
China’s internal demand isn’t back in full swing yet but is on the way. Certainly, export growth isn’t what it was given the weakness in the rest of the world. One thing is clear, steel production/demand is showing in iron ore prices and export volumes from our major miners to China. Australia would be in real strife if iron ore become a target of China’s wolf diplomacy. Lets hope the major competitors aren’t in a position to export big volumes to China any time soon.
We are about to see just how much bad news is priced into this market. Where that is the case, “less bad” news is a reason for positivity. If we are right and a lot of bad news is priced in, then reporting season is not going to be that big an issue. Commentary and outlook statements are going to be key. At this time of year companies get 2 opportunities to comment. Firstly, with their profit report – where they show their results for the year, comment on what had occurred and about the current trading conditions and their expectations for the year ahead. Secondly in October (AGM season) where more statements will be made about the year ahead, and the first quarter. We all know the 2020 result is going to be poor – it is the outlook that is key.
What we know is that the worst has passed, and the recovery is underway in stages, state by state. The critical commentary is what companies are experiencing now and expect in the future.
The Fed continues say that the Federal Reserve (Bank) will back the US economy (read equities) until this is fixed! This FOMC support is not going anywhere soon.
Shock horror: Trump suggested that the US election be delayed due to Covid-19.
OMG, don’t let it be so!
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