Gold drifts lower as Fed convenes rate-setting meeting
Dwindling LBMA, COMEX silver stockpiles going to India at record-setting pace

(USAGOLD – 9/20/2022)  – Gold drifted lower in early trading as the yield on the 10-year Treasury pushed over 3.5%, and the dollar index neared the 110 mark. It is down $8 at $1670. Silver is down 24¢ at $1939. The FOMC begins rate deliberations today, with its decision due tomorrow and a press conference to follow. Despite silver’s Fed-driven struggles of late, Money Week’s David J. Stevenson believes the longer-term outlook for the metal “remains auspicious” and that a future Fed course correction would likely instigate a price rebound like “a coiled spring.”

There has been considerable discussion about the recent drain on global silver bullion inventories as investors load up on the metal at cyclically low prices. Analyst David Heller reports LBMA physical silver stockpiles are now at their lowest level since 2016. Likewise, COMEX inventories are currently running at about one-third of what they were in 2020. “Where is the physical silver going that is leaving the LBMA and COMEX?” he asks in an article published in Numismatic News. “Metals Focus India reports that silver demand in that country, perhaps the world’s top silver consuming nation, is now so strong that the silver price in India is trading at a premium to the world silver spot price. In July 2022, almost 58 million ounces of physical silver was imported into India. This was at least 50 percent higher than in any month in the previous four years and may be an all-time high record amount of imports into India in any month.”

Silver annual gain or loss
(%, 2000 to present)
bar chart showing silver gains and losses as a percent 2000-2022
All Rights Reserved USAGOLD 2022 • • • Data source: MacroTrends.net

Editor’s note: Although we do not see a Fed course correction coming anytime soon, we believe that the Fed will be hard-pressed to push interest rates above the inflation rate – the circumstance many economists see as necessary for containing inflation. In short, the Fed will continue raising rates but fail, in our view, to bring inflation anywhere near its 2% target level anytime soon. This prospect – stagflation – has yet to be fully factored into asset pricing, though it cannot be long ignored. The stagflation scenario, as forecasted by several prominent economists from Roubini, to Greenspan, to El-Erian and Hanke (among others), was very friendly to precious metals during the 1970s. At the time, investors generally saw their accumulation as a defensive strategy, which we believe is the strongest argument for their accumulation now.

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