In September, President Trump’s new tariffs on $110bn in Chinese imports kicked in, China also began stage one of retaliatory tariffs on $75bn of U.S. goods. The FOMC cut rates again by 25bps, but the economic data and forecasts indicate a relatively good domestic economy, so there was dissension over both the decision and what lies ahead, the median projection sees no more rate cuts this year. The federal budget deficit reached $1T for the fiscal year through August, crossing that level for the first time since 2012 and rising 19% y/y. The ECB cuts further into negative territory and restarted its quantitative easing programme of bond-buying. China also start to stimulate measures. Oil surges after attack on Saudi oil field and facility, Brent spiking 19% initially for its largest single gain on record since futures began trading in 1988, then restored with more production restored information. Gold price moved up to US$1550/oz level then down to US$1472/oz, due to some profit taking after a strong period, a stronger Dollar near its highest since 2017, and technical breakdown below the 50 day moving average at $1,484. Silver was also more volatile after topping $19/ounce for the first time since 2016.
US equities were mixed with lower potential, also the Asian stocks. Precious metals equities decreased much more than metal prices although the brokers research reports were starting re-rating. In our view, low-to negative- yielding bond rates, prospects of global renewed easing, and escalating trade tensions provide support of gold and silver to trade for a sustained period above long run equilibrium. Look back at how the equities have trade using 30 years of data, suggests that precious metal equities should be trading towards 15x P/CF as precious metal prices rise to towards peak, the trough multiples are in the 6-7x range now. At an average 9x P/CF are closer to mid-cycle multiples suggesting that the potential is to the upside for gold equities at current prices.