Gold’s reaction to bad economic data continues to be weakness; the precious metal is down almost 1% on Friday. Peter Hug, global trading director of Kitco Metals said that it is only a matter of time before the metal reverts course.
what does the new round of stimulus measures proposed by Biden mean for the economy, stocks and gold. We're here to discuss that with us as Peter hug, global trading director of Keiko metals, Peter. Welcome back. That's good to be here. David, as luck would have it, I was telling you offline as luck would have it right after we spoke last week, gold tanked and it's falling again today.
We're going to be talking about gold, but first let's recap, the big news item of today and yesterday Biden just passed a $1.9 trillion stimulus plan. That was much anticipated your initial reactions to this amount and how it's going to be spent. Well, first of all, he's proposed it. He hasn't passed it yet.
I think he's going to get, even though he does have the majority with, uh, Kamala Harris, uh, in the Senate, I think he's going to get some mythical pushback from, uh, uh, the Senate on the 1.9 trillion proposal, uh, because a good chunk of it, uh, or at least a good percentage of it is going to the States. And, uh, the Republicans have had an issue in bailing out the States.
So we'll see how that plays out. Um, I mean, As I've been saying, uh, David, uh, for a number of weeks now, even prior to the election, that it is absolutely critical that we get a significant stimulus added to the economy. Uh, you know, as a bridge until, uh, uh, you know, this, uh, this vaccine, uh, can be widely distributed.
And, uh, you know, we develop something that gives, uh, you know, uh, individuals competence to go back to work and we can open up the economy and, uh, you know, that. Issue is still right in front of us where, you know, in the middle of the worst, uh, wave of the pandemic that we've ever seen. Uh, and I, and I still think it's, it's, it's a matter of time.
Uh it's so it's, it's, it's a, when not an F that the economy will, um, restart, but, uh, I, I still think we've got a few months ahead of us before we're actually in that mode. So this 1.9 trillion, if it gets approved, is. Absolutely crucial, uh, you know, sort of the cheap, uh, cheap people in essence alive. And I, you know, until we get to that point.
So here's my question, Peter, December data was pretty bad across the board. Retail sales were down almost a percent. We lost 140,000 jobs in December alone when the projected, um, payroll figures were actually supposed to be positive, but they were negative. And so do you think the stimulus measure is enough to reverse course?
I think it'll help. I mean, it, you know, certainly, uh, the evictions will stop. There's been a moratorium on those. The, uh, the unemployment, uh, um, uh, payments will continue, uh, from what I understand until September, um, small businesses will get, uh, another jolt to keep them at least alive. So we have something to reopen.
Um, we have, uh, Help for the States. I think that's critical. Uh, I still think there's going to be some social turmoil, uh, past the election, uh, with, uh, with the Democrats taking control. And, uh, you know, I think it's crucial for the States to be able to maintain their essential services. Uh, you know, whether it's police, fire, or paramedics.
Uh, so, you know, in that context, uh, I believe that. This is a necessary step. And I think, again, it's, it's, it's a matter of when, not if, but, uh, right now I think the economy is in trouble. As we saw this morning with the retail sales, both November was revised down, uh, and December came in under, uh, under, uh, estimates.
So the economy is struggling. Um, you know, there are parts of the us economy that are what you would. Classify as semi-open, but, but the big cities, New York, LA, uh, uh, they're in serious trouble and they're in basically lockdown mode. Uh, so there are a lot of people out there struggling. And, uh, you know, we're not out of the woods yet, and this is going to go a long way to keeping, uh, The hope and any economy alive until this a vaccine can do its work.
It was down about $17 as we speak right now, uh, in the morning of Friday. And so I wonder why gold is reacting negatively to first of all, stimulus news. And second of all that economic data, I would expect it to do the opposite. I think it will do the opposite. It's a matter of timing. I mean, if we look at, uh, you know, we look at the March timeframe when, you know, the pandemic first came out and, uh, you know, we had closures and the economy was starting to, uh, backtrack.
Uh, and I, and I think we're. In, in a similar mode right now, uh, that you have a, you had a situation where, uh, people got scared and, and, and they remained scared. And until there is some clarity here, uh, moving assets, you know, whether it's out of equities, I think, uh, the Dow's down some, two 50 today, um, uh, Yeah, no, there's some clarity here.
I think the natural reaction, and again, that sounds like an old record is that there, there is this instinctual sort of urge to move into liquidity and liquidity is, uh, continues to be identified as cash. Is that why the bond yields have moved up as well? The bond deals are surprising. I mean, we had a ball at the 10 year old, uh, uh, trade at one 18 early this week.
It's back down to around the one 10 level. Uh, but I do think it's, it's a move to safety. I think, uh, some investors are concerned about the lofty, uh, levels of the equity market and they've, uh, diversified, uh, some of their equity positions, uh, moved them into cash and put them in, uh, into the tenure. So, um, Again, it's more a fear trade, uh, and, and a move to safety, uh, that is creating this, um, once the economy re gears, uh, this pent up demand and this cash that is now be sitting on the sidelines, uh, is going to make for an extremely vibrant, uh, recovery, um, uh, Hopefully sooner, rather than later, I'm still thinking sometime early summer that this will start.
Uh, but, but it's, again, I think it's, it's, it's not a, if it's a whim, not an F uh, that this will have. So from now to early summer, is this fear going to last? Should we stay short again? I, you know, right now the government just is a mouse. Uh, I think Biden needs to get in there and at least, uh, show that the government is again functional.
I mean, Um, I'm not trying to be negative on, on president Trump, but he's basically fired everybody. There's really nobody running the government right now. Uh, I, I think people are at least looking whether they agree with it should be a Democrat or a Republican. Looking for some kind of leadership out of Washington and something getting done and, uh, and, and getting, uh, you know, this vaccine distributed, I mean, the 20 million doses that came out in December were supposed to have been in people's arms by the end of December.
I think we're not even 50% there yet. So. There needs to be some leadership here by the government. And, uh, I guess my, my caveat there would be this, uh, impeachment trial, which I, I don't agree with. I'm not suggesting that what Trump did was right. I totally disagree with what Trump did and he should be held accountable.
However, having, uh, an impeachment trial in the first week of Biden's presidency. Well, he's trying to get a handle on coronavirus and trying to get a handle on me. Uh, economic recovery in my opinion is, uh, is a fool's game. Uh, so that could be a, an issue to get things done quickly. And if it does delay action by the government, This trial.
Um, I think the fear will increase and I think that will manifest itself in lower equity prices and possibly, uh, lower commodity prices as people continue to move to cash. So what if you could sum up in one sentence or two, what exactly investors are fearful? Of right now, because prior to Christmas, I remember there was a lot of uncertainty as to whether or not stimulus would be proposed.
At least now it has before the vaccine. We weren't sure we're going to get a vaccine. We had that ever since November. Uh, what, what's the fear now? I don't, I don't think there's any new information from the Corona side. That is, that is driving fear less than mistaken. Well, there I disagree. I mean, I think people were given hope.
Uh, back in November that, uh, you know, when Pfizer came out and then Madonna came out and then Johnson, Johnson, and Johnson said they were coming. And I heard today that their vaccine is a one, a window shot, uh, that, you know, In 2021. And, you know, again, people get exuberant and, and, and they, and they, they bring timelines in quickly because they assume it's tomorrow.
And when the government speaks and it's never tomorrow, but the, uh, the hope was that. Everything would be back to normal after new year's. Uh, you know, if you look at the new year's, uh, uh, celebrations, I mean, 2020s dead, 2021 is going to be great. It will be, but it won't be immediate. And, uh, if you look at an economy in the U S uh, while globally, you know, these economies are going at maybe 60%.
And you've got equity markets that are reflecting full, born, healthy economies. I mean, there's a disconnect there and, uh, you would expect that people, uh, when they get nervous and they are still nervous about this vaccine and the, uh, the timing of when the economy is going to revamp, um, That nervousness continues.
And, uh, you can't blame them. I mean, it just looks like the information coming out of Washington, uh, is just so disjointed and people just don't have a comfort level that somebody steering the ship and, uh, I'm hoping. Uh, that when the Biden administration takes office, that they'll be able to effectively and quickly mobilize and show, uh, the American people, uh, that, uh, there's a plan and the plan makes sense.
And it's going to work once that happens. Uh, the markets are forward-looking and they'll start to, uh, they'll start to invest in anticipation of this happening, but right now it's still a question when inflation also Rose lower than expected in December with the PPI, the producer price index up 0.3%.
The consensus forecast is 2.4% so slightly higher than consensus forecast. So I started lower rather. And I wonder if that is also weighing down on gold prices today. Again. Our inflation, uh, model indicates that again, it's, it's, it's, it's, it's subject to the, to the economy restarting and, and being somewhat normalized.
Uh, but our inflation model indicates that, uh, inflation has the potential to become a risk. Uh, but not until probably third quarter of this year. I mean, we've, uh, We've been saying that for a few months now. Uh, it's not an immediate, uh, uh, issue. There are still, um, uh, inventory sitting on the market and, uh, the off-take from the consumer is, is still not at full, at full gear.
And, uh, one, it does, uh, again, become a more pronounced demand equation. I think then you're going to see pressure, uh, and you'll see inflation rising. Uh, but again, it's an event that's probably a mid, you know, just sort of June the third quarter of this year, where I think, uh, there could be an issue with inflation getting out of hand.
So after Friday's sharp drop after today's losses, how are you positioned for gold? For the coming weeks. Uh, again, uh, it depends on, you know, uh, on how you were asking me the question. If you're asking me the question as a trader I'm in and out of this market on a daily basis, um, we got into the market when it broke through 1850 at the beginning of the week.
Uh, then it broke down through 1850. We got back out, uh, I'm looking for 1825 to hold. If we lose 1825, I mean, at these levels right now, Um, I, uh, I'd belong, uh, you know, at the 1825 ish level, it's about 1827 as we speak. Uh, I, uh, I belong the trade, uh, with a tight stop. If we lose 1825, we might see 1800 as a trader.
So that's my comment as a trader, uh, as a, uh, as an investor, uh, I mean, These levels here, in my opinion are levels to add to your position if you don't have your allocation, uh, okay. At a level that you are looking at. So, so I, you know, at 1825 goal, I think as an investor, Uh, I don't think you'll go wrong.
If you add to your goal position at these levels as a trader of this market, when you're in and out every day, are you, are you usually following momentum or are you selling into strength or are you doing the reverse? When, when things fall, what do you do? Do you sell or do you just wait? Do buy some more into the weakness.
How do you approach this market right now? Well, again, as a trader, uh, this is a little different, uh, trading, uh, for Kitco, uh, which is, uh, you know, the largest or one of the three largest retail dealers in the market, uh, as opposed to trading for a wholesale bank where you're, uh, where you're trading size.
Uh, you know, usually training 5,000 goal to training, uh, you know, a couple of hundred thousand silver at a clip, um, and you're making markets to other banks or the major dealers. So from a retail perspective, uh, you know, a lot of the, uh, sort of movement in the market is dictated by what our clients are doing.
If they're net, buyers and sellers, and you can position yourself, uh, uh, based on, on, on the volume, that's coming in on your, either on your bid or your asking. Uh, but we tend to be, um, fairly conservative in our position taking, uh, and we use both fundamental and technical analysis to determine, uh, you know, whether we should be, uh, sort of, uh, Leaning more to the long side or leaning more to the short side on a day-to-day basis.
So, you know, our book has to be traded minute by minute, we're open 24 hours. Um, so it's, you know, it's a situation that's very fluid and, uh, no, we make adjustments depending on what's happening in the market, whether it's a technical break or whether it's fundamental news that, uh, that creates the move, uh, we then have to make a decision as to how we want to be positioned.
Uh, you know, as, as things develop, uh, in the market, Okay, very good theater. Thank you very much for your update this week. And I look forward to speaking with you next week. Okay, David, thank you. And thank you for watching Keiko news.