Gold drops back to $1500 level in advance of Fed chairman’s Friday speech

(USAGOLD – 8/21/2019) – Gold dropped marginally in today’s early going and is now hovering again near the $1500 mark – down $5.50 on the day.  Silver is down 2¢ at $17.10.  The markets in general might take a breather for the next couple of days in anticipation of Fed chairman Powell’s address to open the central bank’s Jackson Hole conclave on Friday. Some see the speech as an opportunity for the chairman to make amends for his ‘midcycle adjustment’ statement at the end of July and perhaps open the door for a series of rate reductions. President Trump elevated pressure on the Fed to reduce rates likening the Fed chairman to “a golfer who can’t putt.”

A CNBC article by Patti Domm published this morning examines some of the problems associated with declining yields and the possibility of negative interest rates in the United States. “It’s very depressing. . .Just think about it as a saver or investor,” says Michael Schumacher, director of rates at Wells Fargo. “It’s very hard to wrap your arms around the idea of negative yields. It doesn’t really sit well…It’s terrible for the financial system. Look how European banks have done for the last six, seven years—very poorly.”

Declining and negative rates have reignited gold demand around the world. ETFs, the favored gold ownership vehicle for funds and institutions, have seen their stockpiles grow by nearly 20% just since June. Private investors, many of whom favor more direct ownership in the form of coins and bullion, have lagged their institutional brethren. That tardiness, though, seems to be in the process of turning around. Over the past few weeks, demand has picked up at USAGOLD and website traffic has increased 40% over the past 90 days.

Chart showing rise in Gold ETF holdings since September2018

Chart courtesy of GoldChartsRUs/Nick Laird

Quote of the Day
“I have a theory that computers started to suck when dumb people started to use them. The same is also true of precious metals, which turned into a speculative football in 2011. Those geeks are gone, and only the die-hards are left — the shiny rocks passed from weak hands to strong hands.” – Jared Dillian, NewsMax Finance

Chart of the Day

Chart note:  When the yield curve temporarily inverted last Wednesday, the Dow Jones Industrial Average plunged 800 points.  Peter Fisher, formerly head of fixed income at BlackRock and currently a professor at Tuck School of Business at Dartmouth, put it succinctly in a Financial Times editorial July of this year. “The mistake,” he says, “is to think it [an inverted yield curve] is a predictor of recessions. I think it causes recessions.”

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