Gold firms as markets log business as usual response to Fed conclave
Asia kicks off its annual end-of-year gold buying spree with solid August

(USAGOLD – 9/23/2021) – Gold firmed in the follow-up to yesterday’s Fed conclave, the dollar weakened and bond yields pushed higher. In short, this morning’s market snapshot is not substantially different from countless others over the course of the past two years. For Fed Chairman Powell, the business as usual response signals a job well done – a happy ending to another grueling Fed Week. Gold is up $5 at $1774. Silver is level at $22.76. For those with an interest in sorting through the details on yesterday’s meeting, we recommend John Auther’s Bloomberg column this morning: Tapirs are less scary for markets than black swans.

The annual end-of-year gold buying season in Asia is off to a solid start, according to Sharps Pixley’s Lawrie Williams. Swiss exports to India last month, he says in a report posted yesterday, were up 250% over August 2020 while exports to China doubled. Though China’s demand appears somewhat restrained, the surge from very low pandemic numbers last August reflects something of a return to normality. The two countries together, he says, are likely to consume 60% to 70% of the world’s mine production in 2021. “Altogether Asian and Middle Eastern nations,” he adds, “received 98.4 tonnes, or 83.5% of Swiss gold exports in August serving to emphasize the overall demand destinations of gold bullion from Western nations to Eastern ones where it is mostly held in stronger hands and thus less prone to being put back into the global gold supply mix.” Swiss refiners are the chief source of physical gold bullion going to Asia.

Chart of the Day

overlay chart showing gold and the return on the 10 year inflation indexed security

Sources: St. Louis Federal Reserve [FRED], Federal Reserve Board of Governors, ICE Benchmark Administration

Chart note: As you can see in this chart, declining real rates have had a direct effect on the price of gold, particularly noticeable in the period after the 2007-2008 credit collapse and the pandemic-induced economic crisis that began in early 2020. The inflation-indexed real rate of return on the 10-Year TIPS is fluctuating around the 1% level. With inflation on the rise, the negative real rate of return will accelerate unless the Fed and/or bond market pricing push yields higher at an equivalent rate.

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