Banks will highlight first-quarter earnings for 2019 on Friday, which could give precious metals a jolt of gains if the weak guidance expected by a number of corporations translates to a move to safe-haven assets.
Of course, the strength of precious metals will be tied to the Fed and their interest rate policy in correlation with the dollar. Increased dovishness by the central bank could continue to feed into safe-haven asset like precious metals.
Following the central bank’s decision to keep interest rates unchanged last month, a recurring theme of “patience” has been mentioned by Federal Reserve Chairman Jerome Powell. “Patience” with respect to interest rate increases or even rate cuts could translate to dollar weakness.
In move that was widely anticipated by most market experts, the Federal Reserve last month elected to keep rates unchanged, holding its policy rate in a range between 2.25 percent and 2.5 percent. In addition, the central bank alluded to no more rate hikes for the rest of 2019 after initially forecasting two.
With the idea that a permanent trade deal is already priced into U.S. equities, news of the actual deal materializing could send equities higher or cause a sell-off as a result of an overbought condition–something that could help boost precious metals. Furthermore, with weaker guidance coming from the corporate world with regard to first-quarter profits, that could also help spur a move to metals.
“Investors are rightly encouraged by the Fed’s reactions, but the Fed easing on policy isn’t going to alleviate margin pressures,” said Mike Wilson, chief equity strategist at Morgan Stanley. “There’s a big risk to profit margins and quality of earnings we see this month and it’s definitely not priced into the market.”
What ETFs can investors take advantage of?
- SPDR Gold Shares (NYSEArca: GLD): seeks to reflect the performance of the price of gold bullion, less the operation expenses. The Trust holds gold bars and from time to time, issues Baskets in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets. The investment objective to reflect the performance of the price of gold bullion.
- iShares Silver Trust (NYSEArca: SLV): seeks to reflect generally the performance of the price of silver.
- Aberdeen Standard Phys PalladiumShrs ETF (NYSEArca: PALL): seeks to reflect the performance of the price of physical palladium. PALL is designed for investors who want a cost-effective and convenient way to invest in palladium with minimal credit risk.
FactSet data extrapolated from profit expectations from various sectors are already showing a slowdown compared to a year ago:
“Companies are finding themselves more pressured on margins. Even if the economy chugs along and the Fed remains on hold, a greater-than-expected deceleration in earnings wouldn’t bode well for stocks,” said Russ Koesterich, a portfolio manager at BlackRock Inc.’s global allocation team. “The question is whether the market has discounted enough the impact of slowing growth and some margin pressure on earnings.”
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