Gold rebounded to within about $3 of last Friday’s closing price, retracing nearly all of yesterday’s so-called mysterious flash crash. A weaker dollar and heightened risk aversion are providing additional underpinnings to the gold market.
In an interview with KitcoNews, Canadian mining mogul Frank Giustra said that be believes the gold price is “managed” by policymakers because it is essentially the canary in the coal mine: A rising gold market makes it harder for those policymakers to stoke confidence. And that gentle reader is why the gold price is never managed, manipulated or fat-fingered higher.
So the next question was a good one: Why stay in the gold space if the price is “managed?” Giustra responded, “ultimately when everything else goes wrong — which it will — gold will be the only real asset left.” He believes that every portfolio should have some physical gold, “It’s your hedge against the world going bonkers; and the world is going bonkers.”
There seem to be some cracks forming is the manufactured confidence. There seems to be heightened concern about the frothy stock market and some analysts seem worried that we may be on the cusp of another crisis. Even Janet Yellen said today that she could not rule out another crisis, but she doesn’t think it will happen in our lifetime. That statement simply drips with hubris.
Philly Fed President Harker said today that he sees balance sheet normalization and one more rate hike this year, unless “inflation continue to deteriorate.” If that happens, he will have to reevaluate his position.
Fed Vice-Chair Fischer said the Fed must remain vigilant in monitoring financial stability risks. He conceded that the central bank lacks insight in the shadow banking system and expressed specific concern about subprime auto loans and student loans.
Peurto Rico’s legislature passed it’s $9.6 bln budget with no provisions for debt servicing. That seems like a pretty clear indication that they have no intentions of making those payments. I suspect another downgrade is in the offing.
Illinois is in similar straits: If the Land of Lincoln fails to pass a budget by month end, they will be the first state o see its debt rated as junk. It seems very unlikely that Governor Rauner and the Democrat controlled legislature will be able to strike a deal by Friday.
We’ll see if the Fed can maintain the confidence charade as the summer wears on. If confidence fades, gold will look increasingly attractive as a safe-haven trade.