Sowing seeds of greed…and fear

Tuesday, 27 August 2019
Adelaide, Australia
By Bernd Struben

  • A new OPEC headache
  • The longer view on gold
  • In the mailbag…tomorrow’s technology

You do not truly know someone until you fight them.’

Seraph, The Matrix Reloaded

It’s the way I negotiate. It’s done very well for me over the years. And it’s doing even better for the country.’

Donald Trump, speaking yesterday

Donald Trump, rumour has it, watches his fair share of television.

A lot of what he watches is news. Probably flipping from Fox News — where he can do no wrong — to CNN — where he can do no right.

You have to imagine he’s also a fan of House of Cards. That’s the show about ruthless politician Francis Underwood (played by Kevin Spacey) who extorts his way through the ranks to become the US president. It looked like nothing could stop Underwood from eight years in the White House. That is until Spacey got caught up in the #MeToo avalanche.

I don’t know if Trump watches much sci-fi. But his negotiating style is straight out of The Matrix. Hence today’s opening quote from Seraph…the Oracle’s bodyguard.

Trump has picked a fight with almost everybody he can. Not just China, North Korea and Iran.

The list includes all of his Democratic opponents. Many of his Republican ‘colleagues’. Most every one of his own handpicked appointees…like poor browbeaten, Fed Chair Jerome Powell. Then there are the environmentalists. And the globalists. And let’s not forget the Mexicans and Canadians. Or the Europeans and Japanese.

In his early days in office, Trump even had a go at Malcolm Turnbull in that infamous phone call.

But here’s the thing. As he fights with all these people, Trump also truly gets to know them. And in the hoped for reconciliation which follows come the rewards. Or so he believes.

As the G7 meeting wrapped up in France yesterday, Trump was testing the reconciliation waters on two major fronts. The trade war with China, and the growing military standoff with Iran.

First, China…

Just days ago Trump blasted China with both barrels saying the US would be better off without the Middle Kingdom. And he appeared close to ordering US companies to abandon Chinese soil.

Them’s fightin’ words!

Yesterday, Trump had a rethink following a phone call from Chinese officials he said wants to ‘get back to the table’:

They want to make a deal. We are going to start talking very seriously. They’ve been hurt very badly, but they understand this is the right thing to do. This is a very positive development for the world.’

At a later news conference Trump also declared that if a new deal is signed, US companies can stay in China and ‘do a great job’.

China’s top trade negotiator, Vice-Premier Liu He, also offered some appeasing words.

From The Australian:

“We firmly oppose the escalation of the trade war,” said Mr Liu, according to a report by Chinese news outlet Caixin.

“We think an escalation of the trade war is against the interest of China, the US and the entire world.”

Global markets, as you’d expect, celebrated the news by clawing back some of last week’s hefty losses.

Let’s have a look at those now…

Markets

Overnight, the Dow Jones Industrial Average closed up 269.93 points, or 1.05%.

The S&P 500 closed up 31.27 points, or 1.10%.

In Europe the Euro Stoxx 50 index finished up 14.59 points, or 0.44%. Meanwhile, the FTSE 100 lost 0.47% and Germany’s DAX closed up 46.53 points, or 0.40%.

In Asian markets Japan’s Nikkei 225 is up 234.36 points, or 1.16%. China’s CSI 300 is up 1.13%.

In Australia, the S&P/ASX 200 is up 39.25 points, or 0.61%.

West Texas Intermediate crude oil is US$53.88 per barrel. Brent crude is US$58.95 per barrel.

Turning to gold, the yellow metal is trading for US$1,528.45 (AU$2,257.01) per troy ounce. Silver is US$17.69 (AU$26.12) per troy ounce.

One bitcoin is worth US$10,373.88.

The Aussie dollar is worth 67.72 US cents.

A new OPEC headache

A return to the negotiating table in the US–China trade dispute wasn’t the only calming glimmer to emerge from the G7 summit.

Trump also opened the door to talks with Iranian President Hassan Rouhani. This comes after Trump — rightly or wrongly — spurred the current conflict with Iran by pulling the plug on the Obama era 2015 nuclear accord last year.

Calling it ‘the worst deal ever’, Trump believes the agreement is too lax. He says it enables continued nuclear development by Tehran even as Iran stirs regional conflicts.

With its oil exports largely cut off and its economy tanking, Iran has responded over the past months by attacking and commandeering oil tankers in the Strait of Hormuz. A vital transit rout the Iranian government has threatened to shut down.

As I’ve written here before…more than once…if that happens crude oil prices could rocket past US$100 per barrel almost overnight. While if peace prevails, I expect a global supply glut should see oil back below US$50 per barrel in 2020.

Today, another feather drops on the peace side of the scale.

From The Australian:

US President Donald Trump said at the G7 summit that he is prepared to meet his Iranian counterpart within weeks in what would amount to a stunning change of direction in the two countries’ smouldering standoff.

The potential breakthrough was announced by Mr Trump and French President Emmanuel Macron, who said he would facilitate the first face-to-face meeting between the US president and the Iranians…

“If the circumstances were correct, I would certainly agree to that,” Mr Trump said…

Mr Rouhani appeared to accept the idea of opening to talks with Washington. “I believe that for our country’s national interests we must use any tool…”

The plan…as it stands…could see the two presidents meet at the end of September. They’ll both be in New York then for the UN General Assembly.

While you shouldn’t expect a breakthrough deal then, any softening in relations will be welcome. Trump will come in with big demands and equally big rewards. The demands could be a bitter pill to swallow. But tough talk from Iranian hardliners aside, Rouhani is well aware that Iran can ill afford years of crippling US sanctions.

If a new accord is signed heading into 2020, the Saudis will really have their work cut out for them to keep other OPEC+ members from opening the crude taps.

As for future oil production out of the US, check out this chart:



chart image
Sources: Global Witness Rystad Energy data analysis / Bloomberg
Click to enlarge

If US output continues to grow as projected, it will account for more than 60% of new crude hitting the markets over the next 10 years. That’s 40 times more than new Russian production and 20 times new Saudi supply.

That should spell good news for global energy prices…and leave a few dollars more in your pocket at the servo. Though according to London-based advocacy group Global Witness, who analysed the data, it will ‘put our safe climate at risk’.

The longer view on gold

So investors have a glimmer of hope in the US trade war with China as well as the nuclear accord dispute with Iran.

And so the markets go up…while gold and gold stocks slide.

But as we’ve seen before, these glimmers of hope can be snuffed by a single tweet from a disgruntled Trump.

Which, in my opinion, makes today’s sell-off of gold stocks short-sighted, at best.

Gold is currently trading for $2,227 per ounce.

That’s down from $2,293 this time yesterday, when the soaring price of bullion saw Resolute Mining Limited [ASX:RSG] gain 10.1%.

While Evolution Mining Ltd [ASX:EVN] gained 9.0%

And Newcrest Mining Limited [ASX:NCM] gained 4.6%.

That came as the ASX 200 shed 1.3%.

Today the ASX 200 is up 0.60%, at time of writing. And the same gold stocks are down.

In intraday trading Evolution is down 5.7%. Resolute has lost 5.1%. And Newcrest is down 2.4%.

But as I said, I think the selloff is highly myopic.

Gold stocks have had a stellar run this year. Evolution is up 37.8% year-to-date. Resolute is up 45.2%. And gold mining giant, Newcrest has gained an impressive 62.0% so far in 2019.

With investors on edge, it won’t take more than a ‘boo’ from any of our geopolitical powder kegs to see investors piling back into gold and gold stocks.

And that’s not even taking central banks’ gold buying sprees, record low interest rates and the coming supply shock Greg Canavan unearthed into account.

In short, you should consider using any pullback in the gold price to add to your exposure of both bullion and the companies that mine it.

You can find Greg’s top four gold plays here.

In the mailbag…tomorrow’s technology

Yesterday you heard from tech analyst Ryan Clarkson-Ledward.

Ryan’s narrative on Robert Hutchings Goddard drew some plaudits from readers. Like this one, from Rick:

Thanks Ryan, for that article on Goddard.  I haven’t read that anywhere before and that was fascinating.  And what a great quote, “Every vision is a joke until the first man accomplishes it; once realized, it becomes commonplace.”

If you subscribe to Australian Small-Cap Investigator or Revolutionary Tech Investor, you’ll be familiar with Ryan’s work.

I’ve known Ryan going on three years now. In fact, I hired him. My hope was that this young gun would synch well with our in-house technology guru, Sam Volkering. And that’s paid off in spades.

As Ryan mentioned, big things are afoot with Revolutionary Tech Investor, Sam’s premium advisory service. But what does it have to do with the ‘driverless cars, genetic editing, quantum computing, nanobots, artificial intelligence, lab-grown meat, augmented reality, and cybernetics’ he mentioned?

In short, everything. But there’s a lot more to the story.

I should be able to share the full details with you next week. Watch this space.

Cheers,
Bernd