Precious metals start September with show of strength, Eurozone slides into deflation

(USAGOLD – 9/1/2020) –  Precious metals started the month – usually, one of their strongest seasonally – with a show of strength as the dollar fell for the sixth straight day and the European Union reported a slide into deflation. Gold is up $20 at $1990. Silver is up 63¢ at $28.82. Analysts see gold’s stubborn positioning just below the $2000 mark as a response to Fed policies aimed at weakening the dollar and pushing up the inflation rate under deeply entrenched disinflationary circumstances. In that regard, the Eurozone’s brush with deflation serves as a warning shot across the Fed’s bow. CNBC is out with a report this morning predicting five years of zero percent rates at the minimum.

“In the past few months,” sums up Rothko Research in a recent report posted at Seeking Alpha, “the threat of a potential deflationary depression caused by the global supply and demand shock due to COVID-19 forced governments and central banks to massively and constantly intervene in the market. As a result, one of the most important charts in the current environment has been the annual growth in central banks’ assets, which reversed from -1.5tr USD in March 2019 to nearly 5tr USD in July 2020 and generated a tremendous rally in gold. Figure 1 (below) shows that the annual change in assets in the major 5 central banks (Fed, ECB, BoJ, PBoC, BoE) has co-moved significantly with the change in gold prices. With gold up over 25 percent year-to-date, investors have been questioning if the recent consolidation was announcing a temporary pause.”

Editor’s note: In turn, the ratcheting up of central bank balance sheets around the world has simultaneously prompted an extended run for gold in the world’s largest economies as illustrated in our Chart of the Day.

overlay chart showing G5 central bank assets and gold year over over 2012-2020Sources: Eikon Reuters, RR calculations
Courtesy of Seeking Alpha/Rothco Research

Chart of the Day

Gold in six major currencies as of 8-28-2020Chart courtesy of • • • Click to enlarge

Chart note:  Over the past five years, gold has risen sharply in six of the world’s top currencies – Indian rupee (+92.19%); Chinese yuan (+87.0%); U.S. dollar (+74.05%); British pound (+100.77%); European euro (+63.5%), and Japanese yen (+50.52%).  The rising tide in those currencies represents concern among the citizenry of each country about further debasement of the national currency and attendant systemic risks. (All as of 8/28/2020)

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