Gold drives deeper into the $1800s on inflation push
Delayed reaction to yesterday’s CPI report reinforced by this morning’s wake up call
(USAGOLD – 7/14/2021) – In a delayed reaction to yesterday’s consumer price report and reinforced by this morning wholesale prices wake-up call*, gold drove deeper into the $1800s. A weaker bond market and dollar provided additional impetus to the charge higher, as did a statement this morning from Fed chair Powell during Congressional testimony that the Fed would not alter its ultra-easy monetary policy anytime soon. The yellow metal is up $19 at $1828. Silver is up 34¢ at $26.38. TD Securities’ commodities’ analyst Bart Malek is among the group that believes the forces that drove gold over the $1900 mark are still at work in the market though “the path to new highs is almost never a smooth one.”
“Despite the recent selloff,” he writes in an analysis posted in the Singapore Bullion Market Association’s quarterly review, “we judge that the Fed’s continued emphasis on its full employment mandate should see gold recover most of its recent losses. The relatively new flexible average inflation targeting policy framework and the implied willingness to overshoot inflation targets for a period, should the output gap remain wide, are just a few reasons why very easy monetary conditions are likely to persist well into 2023. In this context, the US central bank should keep real interest rate environment highly accommodative across the yield curve for a prolonged period, which is gold and precious metal complex supportive.”
*The Labor Department reported this morning that producer prices rose 6.6% over the past year.
Chart of the Day
(1970 to June 2021)
Chart courtesy of Macrotrends.net • • • Click to enlarge
Chart note: The current ratio is 67 to 1 at present. Investors have been moving into physical silver consistently over the past several months, and that is why premiums on silver bullion coins have remained high. In a recent Casey Research publication, analyst Kris Sayce says, “The gold/silver ratio is a popular indicator among gold and silver investors…According to Medieval Monetary Problems: Bimetallism and Bullionism, published in 1983, the historical ratio (pre-20th century) varied between 9:1 and 14:1. That means one ounce of gold would be worth anywhere between nine and 14 ounces of silver.” At 67 to 1, there is considerable distance between the current ratio and the long-term historical norm.