On the last trading day of 2019, gold and silver are surging as the US dollar tumbles for the 7th straight day.

The Last Trading Day Of 2019
December 31 (King World News) – Peter Boockvar:  On this last day of 2019 there are only a few things to mention. One is that this will be my last writing until Monday January 6th. Cheers to 2020…

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The notable mover today is the continued weakness in the US dollar as the euro heavy dollar index is lower for the 7th straight day to a level last seen at the end of June.

US Dollar Tumbles For 7th Straight Day

Whether its due to the Fed’s expansion of their balance sheet, the ever growing US deficits (both trade and budget), the rise in yields overseas, or other things, I do believe this will be a key story in 2020. And if correct that the dollar continues to weaken, the flow impact could be large.

Gold & Silver Will Benefit
To name a few, foreigners have piled into US corporate credit markets on an unhedged basis and just recently unhedged in the US Treasury market who will both get squeezed and could reverse with higher US rates. Emerging markets will benefit as will US multinationals that aren’t hedged. Higher inflation could result on the goods side, along with commodity prices.

CRB (Commodity Prices) Continue To Surge

Some things to watch and I remain bullish on gold and silver that would benefit. I do think the biggest thing to watch though is the direction of the pile of negative yielding bonds as it could have a direct influence on US long rates in addition to the dollar. That amount peaked on August 29th at $17.04 Trillion and as of yesterday (after the bond selloff) stands at $11.2 Trillion.

Global Negative Yielding Bonds Total $11.2 Trillion

Lastly, where rates go could very well determine where stocks go considering the symbiotic relationship between the two.

China reported its state sector weighted December PMI’s. The manufacturing sector PMI came in at 50.2 just as it did in November and that print around the flat line was about as expected. Underneath the hood saw a slight drop in new orders but a lift above 50 with exports. Backlogs and employment were about unchanged. Business activity expectations did slip by .5 pt to 54.4. The services PMI softened a touch to 53.5 from 54.4. The estimate was 54.2. New orders, backlogs, employment and business activity expectations all fell m/o/m. Combining the two has the composite index at 53.4 vs 53.7 in November. For perspective, the 2019 average was 53.1. 

2020: China To Remain On A Challenging Path
In 2020, China will remain on this challenging path of wanting 6% growth, encouraging more lending to small and medium sized businesses but at the same time trying to control excessive credit growth, allowing more bankruptcies, spending more on infrastructure, keeping monetary policy steady, trying to avoid any more excesses in the property market and managing the tariffs and the shifting supply chains out of China.

The market response was mixed as the Shanghai comp was higher by 1/3 of a percent but the H share index finished the day lower by .5%. For the full year, the Shanghai comp was up by 22% while the H share index saw a more muted 10.3% rise.

Gold Market Preparing For Liftoff
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