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Gold could hit $2,000 in a world full of negative yielding debt

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In a world full of negative yielding debt, hard assets like gold could become even more attractive, and some strategists say a case could be made for a $2,000 per ounce price tag on the precious metal.

Gold futures were at $1,513.80 an ounce Tuesday, down about 0.2%. In late May, gold snapped out of its slumber, broke above $1,300 and has not looked back. In September, 2011, gold futures reached all-time high of $1,923.70 per ounce.

“We have a long position trade on. We are targeting $1,585,” said Daniel Ghali, commodities strategist at TD Securities. “We do think gold is on its way higher for the time being…Over the coming years as the likelihood of the unconventional policy becomes more of a reality, I could see a case for gold at $2,000.”

Gold has also been firming as the world watches protests in Hong Kong and also the uncertainty around U.S., China trade relations. On Tuesday, gold erased its gains and risk assets rallied after the U.S. announced it would hold off on tariffs on consumer products until mid-December.

TD Securities strategists believe the many years of unconventional and easy monetary policy from the world’s central banks has resulted in a shortage of “safe assets” and that’s “evident by the fast growing pile of negative yielding debt, which is ultimately leading to a growing appetite for precious metals.”

“Negative yields are symptomatic for the search for safe assets. The reason they’re trading at negative yields is because the demand for safe assets is bigger than the supply for them,’ said Ghali. “Gold stands to benefit quite a bit from that.. the trade we’ve been recommending we have it as a three moth time horizon. I would argue we are likely on the cusp of a multi-year bull market for gold.”

Bank of America Merrill Lynch’s metals strategist Michael Widmer, in a note, also says negative yields are making gold shine. He said the successive rounds of monetary easing driving bond yields lower and creating $14 trillion in negative yielding debt have also been recently supported gold prices. “With more easing to come, the dynamic will likely sustain a bid for the yellow metal,” he wrote.

But Widmer said all of the rounds of central bank moves, including quantitative easing, have clearly delivered “less bang for the buck” when it comes to stimulus. He said this could result in “quantitative failure,” or an environment where markets focus on high debt levels or the lack of economic growth, and that could lead to volatility.

“At the same time, and perhaps perversely, such a sell-off may prompt central banks to ease more aggressively, making gold an even more attractive asset to hold. We have a relatively conservative 2Q20 forecast of $1,500/oz, but in this scenario, we see scope for gold to rise towards $2,000/oz,” he wrote in a note.

Widmer said central banks are also driving up gold, as they have now become net buyers of the metal. Widmer notes that the World Gold Council expects gold reserves to increase over the next year at central banks.

“The motivation behind the respective reserve strategies varies, with the historical positioning, the long-term store of value, gold’s role as an effective portfolio diversifier and lack of default risk featuring the highest among EM and DM institutions. De-dollarization features as well as a motivation,” Widmer wrote.

Gold futures [for December] are up more than 5.2% in August so far, and 18% for the year so far.

Update: Corrects title to clarify that Daniel Ghali is a strategist at TD Securities

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US-UK trade deal within a year of Brexit will be tight, UK PM Johnson

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It will be tight to meet the United States’ desire to do a post-Brexit trade deal with Britain within a year, British Prime Minister Boris Johnson said on Sunday.

Johnson, who took office last month, had his first bilateral meeting with U.S. President Donald Trump earlier on Sunday at the G7 meeting in France and the two discussed a range of issues including trade.

In interviews with British television media afterwards, Johnson said the United States wanted to do a deal within a year of Britain leaving the EU on Oct. 31.

“Years and years is an exaggeration, but to do it all within a year is going to be tight,” he told BBC TV.

Johnson also said the chances of Britain agreeing a Brexit deal with the EU were improving but it would be “touch and go”.

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Hong Kong police briefly turn water cannon on protesters, fire tear gas

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Protesters gather in Kwai Fong in Hong Kong on August 24, 2019.

LILLIAN SUWANRUMPHA | AFP | Getty Images

Hong Kong police briefly fired water cannon and volleys of tear gas to force back brick-throwing protesters on Sunday after violent clashes a day earlier during which police also fired tear gas for the first time in more than a week.

At least one petrol bomb was thrown by protesters. The water cannon, which had not been used in years of anti-government protests, soon pulled away.

The Chinese-ruled city’s MTR rail operator suspended some services to try to prevent people gathering but protesters made it to a sports stadium in the vast container port of Kwai Chung, from where they marched to nearby Tsuen Wan.

Some dug up bricks from the pavement and wheeled them away to use as ammunition, others sprayed detergent on the road to make it slippery for the lines of police. Clashes spread in many directions.

Police had warned earlier they would launch a “dispersal operation” and told people to leave.

“Some radical protesters have removed railings … and set up barricades with water-filled barriers, bamboo sticks, traffic cones and other objects,” they said in a statement.

“Such acts neglect the safety of citizens and road users, paralysing traffic in the vicinity,” the statement said.

Activists threw petrol bombs and bricks on Saturday in the gritty industrial district of Kwun Tong, on the east of the Kowloon peninsula.

The vast majority marched peacefully on Sunday.

‘Last Chance’

M. Sung, a 53-year-old software engineer in a black mask emblematic of the many older, middle-class citizens at the march, said he had been at almost every protest and would keep coming.

“We know this is the last chance to fight for ‘one country, two systems’, otherwise the Chinese Communist Party will penetrate our home city and control everything,” he said.

“If we keep a strong mind, we can sustain this movement for justice and democracy. It won’t die,” Sung said.

Protesters say they are fighting the erosion of the “one country, two systems” arrangement under which the former British colony returned to China in 1997 with the promise of continued freedoms not enjoyed on the mainland.

The protests, which started over a now-suspended extradition bill and evolved into demands for greater democracy, have rocked Hong Kong for three months and plunged the city into its biggest political crisis since the handover.

They also pose a direct challenge for Communist Party leaders in Beijing, who are eager to quell the unrest ahead of the 70th anniversary of the founding of the People’s Republic of China on Oct. 1.

Beijing has sent a clear warning that forceful intervention is possible, with paramilitary forces holding drills just over the border.

Transport to the airport appeared normal on Sunday, despite protesters’ plans for a day-long “stress test” of transport in the international aviation and financial hub.

Police said they strongly condemned protesters “breaching public peace” and that 19 men and 10 women had been arrested after Saturday’s violence. More than 700 have been arrested since the demonstrations began in June.

The neighbouring gambling territory of Macau, a former Portuguese colony that returned to Chinese rule in 1999, elected former legislature head Ho Iat Seng as its leader on Sunday – the sole approved candidate.

Ho, who has deep ties to China, is expected to cement Beijing’s control over the “special administrative region”, the same status given to Hong Kong, and distance it from the unrest there.

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At G-7, Trump says he is not happy about North Korea missile tests

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SAINT-JEAN-DE-LUZ, France — President Donald Trump said Sunday he was not happy after North Korea launched short-range ballistic missiles over the weekend.

“I’m not happy about it but again he’s not in violation of any agreement,” Trump said when asked about the recent string of tests from the North’s Kim Jong Un.

“I discussed long-range ballistic and that he cannot do and he hasn’t been doing it and he hasn’t been doing nuclear testing. He has done short-range, much more standard missiles, a lot of people are testing those missiles, not just him. We are in the world of missiles folks, whether you like it or not,” Trump said.

Meanwhile, Japanese Prime Minister Shinzo Abe said North Korea’s test was in violation of UN Security Council resolutions.

On Saturday, North Korea fired what appeared to be two short-range ballistic missiles into the sea off its east coast, the South Korean military said, the latest in a series of launches in recent weeks amid stalled denuclearization talks.

North Korea, the only nation to have tested nuclear weapons this century, spent most of Trump’s first year in office perfecting its nuclear arsenal. The newest member of the world’s exclusive nuclear weapons club has stopped testing of its nukes for now as the U.S. and international community offer the possibility of relief from crippling economic sanctions.

Under the third-generation North Korean leader, the reclusive state has conducted its most powerful nuclear test, launched its first-ever intercontinental ballistic missile and threatened to send missiles into the waters near the U.S. territory of Guam.

Since 2011, Kim has fired more than 90 missiles and had four nuclear weapons tests, which is more than what his father, Kim Jong Il, and grandfather, Kim Il Sung, launched over a period of 27 years.

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