Embed Size (px)
Citation preview
<Country>
Issuer of report:
Disclosures & Disclaimer: This report must be
read with the disclosures and the analyst
certifications in the Disclosure appendix, and with
the Disclaimer, which forms part of it
HSBC Securities (USA) Inc
Perspectives on bullionCommodities – United States | 05 May 2016
James SteelAnalyst
HSBC Securities (USA) Inc.
+1 212 525 3117
World events and gold
2
Source: Bloomberg, HSBC
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Recession Gold, USD/oz (LHS)
Feb 16:UK referendum
scheduled for June
Oct 06: Dow closes above 12,000 for the first
time
Dec 07: China becomes the world's
largest gold producer overtaking South Africa
Jan 08:China opens first gold
futures market in Shanghai
Mar 08:Gold breaks USD
1,000/oz
Sep 08: Financial market collapsesLehman Brothers files for
bankruptcy
Nov 08:Fed announces
QE1
Dec 08:Fed funds rate
lowered to 0.25%
Dec 09:Greek debt crisis
springs up
Nov 10:Fed announces
QE2
Aug 11:Gold hits nominal record high of USd1,921/oz...
...after S&P downgrades US credit rating
Sep 12:Fed announces
QE3
Dec 12:Fed announces
"new" QE4
Apr 13:Gold drops by
USD 240/oz in 3 days
Oct 13:US government
shutdown
Dec 13:Fed announces QE
tapering to begin
Dec 15:Fed raises Fed funds rate for the first time
since 2006, by 0.25%
Jan 15:Oil falls below $50 a barrel
Jun 15:Greece misses a
payment of $1.5b to the IMF
Jan 16:Oil falls below $30 a barrelAug 15:
Concerns with China trigger global stock
market sell-of
The Fed and gold
3
Source: Bloomberg, HSBC
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
Jan-
14
Apr
-14
Jul-1
4
Oct
-14
Jan-
15
Apr
-15
Jul-1
5
Oct
-15
Jan-
16
Apr
-16
Gold, USD/oz (LHS)
Feb 29:
Bernanke Testimony
to Congress
June 7:
Bernanke Testimony
to J.E.C
Aug 31:
Bernanke Jackson
Hole Speech
Sep 13:
QE3 & "Mid-
2015"guidance
Dec 12:
FOMC announces new
QE
Dec 18:
Fed announces QE
'taper'Jan 29:
Fed announces
second QE 'taper'
Mar 19:
Fed announces
third QE 'taper'
Apr 30:
Fed announces
fourth QE 'taper'
Oct 29:
Fed ends QE
Mar 18:
Fed removes
'patience'guidance
Jul 15:
Yellen
Testimony to
Congress
Sep 17:
Fed does not raise
rates, citing volatility in
global financial markets
Dec 16:
Fed raises Fed funds
rate for the first time
since 2006, by 0.25%
Feb 10:
Yellen testimony
to Congress
March 16: Fed
does not raise
rates at March
meeting
April 27: Fed
opens door
for June hike
at April
meeting
Gold recovery
• USD rally challenged in 2016
• HSBC forex strategy team suggests a weaker USD in 2016
• USD tends not to rally after Fed raises interest rates; gold tends to rally
• Negative interest rates a positive for gold
• Market expectations of Fed rate rises weighed on gold in 2013 and 2014; fewer-than-expected rate rises are
leading to gold recovery
• Investment shift
• Marked recovery in gold ETFs
• Rebuilding long positions on Comex
• Physical market reacting to higher prices
• A significant discount in India to world prices, implying no import demand
• Indian authorities increased taxes on gold jewelry
• Coin and bar demand volatile in China
• Room is open for central bank gold purchases if USD is seen as weakening but forex holdings are falling
• Supply constraint
• Gold mine production likely topping out; 2015 may be peak year
• Scrap market is down due to low prices
4
Negative rates
5
:
The new trend for
some central banks
Highly supportive of
gold based on:
• Distress
• Lack of opportunity
cost
• Flat yield curve
• Substitute for cash
• “Safe-haven”
appeal
• Central bank
intervention free
More central banks have breached the zero bound
-1
0
1
2
3
4
5
-1
0
1
2
3
4
5
2005 2007 2009 2011 2013 2015
%%
Sweden Denmark Eurozone Japan
Policy rate
Source: Thomson Reuters Datastream
6
Global bonds
Roughly a quarter
of global
government
bonds now have a
negative yield
Gold began its
current rally as the
percentage of
negative bonds
increased
Source: HSBC, Bloomberg. Note: Share of Bloomberg global government bond index with a yield to maturity of less than
0%, calculated using amount outstanding.
Global bonds with negative yield
0
5
10
15
20
25
30
0
5
10
15
20
25
30
Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16
% market% market% World government bonds with negative yield
Gold and rate hikes
7
Based on the last
four Fed
tightening cycles,
gold prices tend to
weaken going into
rate hikes and
then rally for the
next 120 trading
days
Source: Bloomberg, HSBC
December 1986 rate hike
300
350
400
450
500
5.4
5.6
5.8
6
6.2
6.4
6.6
6.8
7
06-Aug-86 06-Nov-86 06-Feb-87 06-May-87
Fed Funds Rate (LHS) Gold (USD/oz) (RHS)
340
350
360
370
380
390
400
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
16-Sep-93 16-Dec-93 16-Mar-94 16-Jun-94
Fed Funds Rate (LHS) Gold (USD/oz) (RHS)
250
260
270
280
290
300
310
320
330
4.2
4.4
4.6
4.8
5
5.2
5.4
5.6
05-Feb-99 05-May-99 05-Aug-99 05-Nov-99
Fed Funds Rate (LHS) Gold (USD/oz) (RHS)
360
380
400
420
440
460
0
0.5
1
1.5
2
2.5
09-Feb-04 09-May-04 09-Aug-04 09-Nov-04
Fed Funds Rate (LHS) Gold (USD/oz) (RHS)
Source: Bloomberg, HSBC
Source: Bloomberg, HSBC Source: Bloomberg, HSBC
February 1994 rate hike
June 1999 rate hike June 2004 rate hike
8
Currency wars: give peace a chance
The end of the
„Currency Wars‟
as suggested by
the HSBC forex
research team is a
positive for
commodities,
including gold
Source: HSBC
End of the currency war: stronger JPY &
EUR
Weaker USD
Positive for commodities
Less pressure on the RMB,
smaller chance of devaluation
Positive for Asian FX
More positive outlook for EM FX
9
Dollar strength scenario
Investment-grade
credit, REITs and
high yield do well
in periods of
dollar strength
while commodities
(including gold)
and certain equity
markets suffer
Source: Bloomberg, HSBC, Thomson Reuters Datastream
Effect of USD strength on assets
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
US
D I
G
RE
ITs
Glo
bal H
igh
Yie
ld
US
D H
Y
MS
CI
Wo
rld
Hu
ng
ary
Eq
uitie
s
Tu
rke
y E
qu
itie
s
Sh
an
gh
ai A
Ha
ng
Se
ng
Oil
MS
CI
EM
Gold
India
Eq
uitie
s
Eu
ro S
toxx
Bra
zili
an
Bo
vespa
Mexic
o I
PC
Co
pp
er
Zin
c
Ave
rag
e T
R in
pe
rio
ds o
f d
olla
r str
en
gtr
h
% o
f p
erio
ds o
f U
SD
str
en
gth
wh
ich
pro
du
ce
po
sitiv
e r
etu
rns
Since 1988 Since 2000 Since 2010 Average TR in periods of dollar strength (RHS)
Gold and inflation breakeven
10
Gold fell in the
absence of
inflationary
pressures
A turn higher in
expectations may
lend some support
to gold
More important, low
inflation
expectations trigger
expectations of
easy monetary
policy, which
supports bullion
Gold moves with inflation expectations
Source: Bloomberg, HSBC
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.5
2.7
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2012 2013 2014 2015 2016
Gold, USD/oz (LHS) US inflation breakeven 10Y, % (RHS)
Gold and China‟s stock market
11
Equity strength
weakened gold
Eventually, equity
declines rekindled
interest in gold
Source: Bloomberg, HSBC
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2012 2013 2014 2015 2016
Gold, USD/oz (LHS) Shanghai composite index (RHS)
12
Global trade
Source: HSBC, Thomson Reuters Datastream
-40
-30
-20
-10
0
10
20
96 98 00 02 04 06 08 10 12 14 16
-40
-30
-20
-10
0
10
20
G7 export volumes
% Qtr Annualised % Yr
% %
Global trade
remains weak
Gold prices tend
to have an inverse
relationship with
world trade
patterns
13
Gold tracks economic policy uncertainty
Source: HSBC, Bloomberg
Gold tracks
economic
uncertainty
The Economic
Policy Uncertainty
Index rose during
the crisis
Gold also rose as
rising uncertainty
triggered bullion
demand
Both peaked in the
same month and
eased lower until
this year
Economic policy uncertainty index and gold
50
70
90
110
130
150
170
190
210
230
250
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gold, USD/oz (LHS) US Economic Policy Uncertainty Index (RHS)
14
Commodity prices
Real commodity prices at 1990s levels
The sharp fall in oil
prices over the past 18
months has brought
aggregate global
commodity prices back
to the 1990s average
level, when adjusted
for inflation
The 12-year „super-
cycle‟ has now run its
full course
A recovery may lend
support to gold
Source for charts: Thomson Reuters Datastream, HSBC
Energy and metals are down sharply
0
50
100
150
200
250
300
0
50
100
150
200
250
300
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Index IndexAggregate Commodity Prices*
Index, 1990s average = 100
Real prices** (LHS)
Real Average1990s
* IMF All commodity price index** Real base = June 2012, deflated by US CPI
Real prices, ex oil** (LHS)
0
100
200
300
400
500
0
100
200
300
400
500
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Real Commodity Prices by TypeIndex, 1990s average = 100
Agricultural raw materials
Food
Index Index
Energy
Metals
15
Gold and investments
The decline in
investment is seen
clearly by the drop
in ETF holdings
Declines have
reversed as risk-
off has
encouraged gold
purchases
ETFs are
rebuilding and we
look for further
build in 2016
based on risk-on
and “safe-haven”
demand
Source: Gold Bullion, ETF Securities, Bloomberg, CFTC, HSBC
Gold and investments
300
500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Spec positions in COMEX, Moz (LHS) Gold in ETFs, Moz (LHS)
16
China‟s gold import from Hong Kong
The drop in prices
in 2013 set off a
wave of demand in
price-sensitive
gold-consuming
nations
Lower prices at
end-2014 stoked
demand
Demand has
softened more
recently but
remained
historically high
until this year
Source: Hong Kong Census and Statistics Department
China: Gold imports from Hong Kong
-20
0
20
40
60
80
100
120
140
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
China net gold imports from Hong Kong, tonnes
17
Gold consumption
India and China are the
world‟s two largest gold
consumers
However, gold
consumption per capita
is still relatively small,
with plenty of room for
expansion
Economic growth and
rising wages are the
driving forces behind
our expectation for
India‟s gold demand to
rise in the long term
Source: Thomson Reuters GFMS
Gold consumption per capita
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Hon
g K
ong
UA
E
Sin
gapo
re
Tha
iland
Sau
di A
rabi
a
Tur
key
Bel
gium
Ger
man
y
Can
ada
Aus
tral
ia
Tai
wan
Iran
Vie
tnam
Sou
th K
orea
Japa
n
Chi
na
Indi
a
Egy
pt
Uni
ted
Kin
gdom
Rus
sia
18
Gold as a percentage of currency reserves among largest holders
Western central banks
hold a large
percentage of their
foreign exchange
reserves in gold
Most other countries
have smaller
allocations of gold in
their foreign
exchange reserves
Emerging market
central banks are net
buyers, while Western
central banks have
effectively stopped
selling gold
China is the second-
largest importer of
gold and the largest
producer
Gold as a % of currency reserves
Source: WGC/IFS
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
US
Ge
rma
ny
IMF
Ita
ly
Fra
nce
Chin
a
Russia
Sw
itzerlan
d
Jap
an
Neth
erla
nds
Gold (tonnes) % of reserves
19
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject
security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation
was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: James Steel
Important Disclosures
This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for
publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other
investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal
advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors
should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary,
seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of
investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into
account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than
originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value
and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular
investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of
companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal
trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at
www.hsbcnet.com/research.
20
Additional disclosures
1 This report is dated as at 06 May 2016.
2 All market data included in this report are dated as at close 05 May 2016, unless otherwise indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research
business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a
management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between
the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is
handled in an appropriate manner.
4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other
sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial
instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of
a financial instrument.
21
Disclaimer
Legal entities as at 30 May 2014
‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan)
Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC
Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC
Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation
Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking
Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’
HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC;
HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai
Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok
Branch
Issuer of report
HSBC Securities (USA) Inc
452 Fifth Avenue, 9th floor
HSBC Tower
New York, NY 10018, USA
Telephone: +1 212 525 5000
Fax: +1 212 525 0354
Website: www.research.hsbc.com
This material was prepared and is being distributed by HSBC Securities (USA) Inc., ("HSI") a member of the HSBC Group, the NYSE and FINRA. This material is for the information of clients of HSI and is not for publication to other persons,
whether through the press or by other means. It is based on information from sources, which HSI believes to be reliable but i t is not guaranteed as to the accuracy or completeness. This material is not, and should not be construed as, an offer or the
solicitation of an offer to buy or sell any securities. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. HSI and/or its affiliated companies will buy
or sell from customers on a principal basis the securities of the issuer(s) whose securities are recommended in this report. Employees of HSI and its affiliates not involved in the preparation of this report may have positions in the securities
mentioned in this report and may from time to time add or dispose of any such securities in a manner different than discussed in this report. Past performance is not necessarily a guide to future performance. The value of any investment or income
may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an
adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the
risk to which it is exposed. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The protections afforded by the UK regulatory
regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of
institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the
SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority
of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Hong Kong, this document
has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should not be
distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily
suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. In Korea, this publication is distributed by either The
Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified
in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL
are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL
301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective
entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has
been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated
in Hong Kong SAR. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed “Commentary” in Canada although
other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation,
any currencies, securities, commodities or other financial instruments).
© Copyright 2016, HSBC Securities (USA) Inc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of HSBC Securities (USA) Inc. MICA (P) 073/06/2015 and MICA (P) 021/01/2016
