DAILY MARKET REPORT
A tiny sliver of light flickered at the end of the tunnel this morning with gold bumping $2.50 higher at $1251.50. A slight improvement in China’s yuan was a help as was Europe’s coming to an agreement on immigration policy – an outcome that sent the euro higher on international markets.
The PCE Index, the Fed’s favorite inflation indicator, also offered a glimmer of hope by rising 2.3% (yoy) in May and exceeding the central bank’s 2% target level for the first time in six years. Chairman Powell mentioned recently interest rate policies would not be thrown off course if inflation were to exceed the target level, so the effect on gold and the dollar are likely to be limited in the short term.
Over the longer term though if inflation expectations begin to gather some momentum, current prices might attract some fresh buying in the gold market. MineLife’s Gavin Wendt summed it up this way for Bloomberg this morning, “The U.S. dollar has been the biggest beneficiary as investors’ first choice safe haven. This has indirectly led to gold-price weakness, as the dollar and gold typically move inversely to each other. With the emergence of inflation, gold is likely to find a bottom, as the dollar’s gains weaken.”
Quote of the Day
“If history teaches anything, it is that government cannot be trusted to manage money. When currency is not redeemable in gold, its value depends entirely on the judgment and the conscience of the politicians. (That is the situation in this country today.) Especially in an economic crisis or a war, the pressure to inflate becomes overwhelming. Any alternative may seem politically disastrous. Whether it be the Roman emperors repeatedly debasing their coinage, the French revolutionary government printing a flood of assignats, John Law flooding France with debased money, or the Continental Congress issuing money until it was literally “not worth a Continental,” the story is similar. A government in financial straits finds its easiest recourse is to issue more and more money until the money loses its value. The entire process is accompanied by a barrage of explanations, propaganda and new regulations which hide the true situation from the eyes of most people until they have lost all their savings.” – Scientific Market Analysis
Chart of the Day
Chart note: “In 1982, back when I was a toddler,” says Sovereign Man’s Simon Black, “the price of a Ford Mustang was $6,572. Today the cheapest Mustang starts at $25,680 according to Ford’s website. So a Mustang today is around 4x as expensive as it was 36 years ago. US Labor Department data from 1982 shows that average earnings were $309 per week, or $16,086 per year. That was enough to buy 2.45 Mustangs. Today’s earnings are $881 per week, or $45,812 per year. That’s only enough to buy 1.78 Mustangs.” A good way to fill the gap is through gold ownership. A long-term gold holding has more than compensated for the destruction of the currency for those with patience and an understanding of the forces at work in the modern economy. The chart above on the purchasing power of the dollar and gold since 1971 speaks volumes.