Gold

The next rate hike is unlikely before September, despite the rebound in April retail sales. The dollar could suffer for a time, but the long-term bull market is intact.

Helicopter money is coming, and once deployed, will prove to be much more successful than most people imagine. Stay long Japanese and German inflation swaps. USD/JPY and EUR/USD are ultimately likely to reach 140 and 0.9, respectively, over the next two years. The U.S. economy will remain resilient enough to make helicopter money unnecessary but a strengthening dollar will greatly curtail the ability of the Fed to raise rates. Investors should overweight Treasurys relative to bunds and JGBs. Helicopter money will benefit gold as well as the beleaguered European and Japanese stock markets.

China's reflation policies have succeeded in reviving iron ore and steel prices, which are up 45.6% and 52.6% from their January lows, along with the profitability of domestic steelmakers.

Saudi oil policy, like its defense policy, will be more aggressive and less predictable, following Deputy Crown Prince Mohammed bin Salman's apparent nullification of a production "freeze" deal at Doha.

A weaker USD resulting from more dovish forward guidance from the Fed, and evidence of continued production declines in non-OPEC and OPEC countries will continue to buoy oil prices.

We upgraded gold shares to overweight in early March, because gold rises in stature as monetary policy loses its efficacy. The spreading global shift to negative deposit rates is creating a significant amount of uncertainty, as the unintended consequences of this unorthodox policy remain unknown. In the meantime, real interest rates, the opportunity cost of holding a zero-yielding asset like gold, have slipped back into negative territory, and may need to fall further to reverse the decline in economic confidence. That is a plus for gold, and gold shares. While gold and gold shares may look overbought on a short-term basis, it is important to keep the longer-term context in mind. Gold is still far below its 2012 highs, while gold share relative performance is barely above its secular lows, which should trump any near-term concerns about overbought conditions. Consequently, we continue to believe that gold equities provide attractive portfolio protection and are an excellent hedge against monetary policy exhaustion. Stay overweight. The ticker symbols for the stocks in this index are: BLBG: S15GOLD - NEM, RGLD. A Golden Opportunity A Golden Opportunity

These general themes - along with our assessment that markets were overestimating downside price risk and underestimating upside risks arising from supply destruction and geopolitical instability - supported the best-performing strategic recommendations we made last quarter.

Gold seems to be leading global share prices. Gold prices have rolled over since March 10. Hence, odds are that the U.S. dollar is about to bottom, and that global and EM stocks, as well as commodities prices, are about to relapse. We recommend two new trades in central Europe: Go long central European banks / short euro area banks and buy 10-year Polish domestic bonds.

While the post-GFC linkage between oil prices and medium-term inflation expectations evident in the 5-year/5-year (5y5y) CPI swaps market will continue to be debated for years to come, this is an empirical fact that will affect monetary policy and the evolution of FX and real interest rates over the medium term.

Lower oil prices are aggravating financial and social stress in poorer OPEC states, particularly in Venezuela, where the government recently executed a gold-for-cash swap ahead of looming debt payments.