Author Archives: Daily Market Report

Gold unexpectedly catches a bid ahead of tomorrow’s Fed meeting
World Gold Council reports record 399-tonne jump in central bank gold demand

(USAGOLD – 11/1/2022) – Gold unexpectedly caught a bid ahead of tomorrow’s Fed meeting as investors entertained the notion of a more dovish sentiment emerging from the proceedings. It is up $21 at $1657. Silver is up 80¢ at $20.03. Gold was helped along by a World Gold Council report that central banks had purchased a record 399 tonnes of the metal during the third quarter of 2022. In addition, it reported the highest global investor bar and coin demand since 2011 – 351 tonnes.

“US mint coin sales y-t-d are the highest since 1999,” says WGC in its Gold Demand Trends released this morning. “As consumers express increasing pessimism about the state of the US economy amid increasing inflation, investment demand has been supported by gold’s role as an inflation hedge. This is reflected in a consumer survey we ran in September in which 82% of US gold investors agreed that gold offers protection against inflation and/or currency fluctuations and 85% agreed that it is a good safeguard against periods of political/economic uncertainty.”

bar chart showing central bank gold demand through Q3 2022
Chart courtesy of the World Gold Council

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Gold weakens marginally as we enter Fed Week
 ‘You might want to go into gold.’ – Nouriel Roubini

(USAGOLD – 10/31/2022) – Gold weakened marginally as we enter the stormy waters of Fed Week. It is down $3 this morning at $1644. Silver is down 7¢ at $19.26. There is a school of thought among investors that the Fed might be preparing for a future pivot on inflation and many will be looking for clues in Wednesday’s statement and press conference on its validity. Stocks and bonds have rallied on that presumption while precious metals have taken a more circumspect approach. Economist Nouriel Roubini is among the group that believes that the Fed is headed for an abrupt change of heart. The central bank, he says in a recent Bloomberg interview, is likely to “wimp out” on its inflation stance and push the economy, as a result, into the worst monetary crisis since the 1970s.

For years, Roubini shied away from gold despite his notoriously gloomy outlook, but now he recommends it. “You might want to go into gold,” he says. “It has not done very well in the last year but once inflation becomes unhinged when the central banks are going to blink, and until now central banks have played tough. That’s why gold has done poorly, because the real rates were going higher. Then gold is going to outperform like other precious metals, like probably many commodities. But the commodities are going to be hurt by the recession. So gold is actually less cyclical.”

stein cartoon of a couple headed down a steep 401k roller coaster track

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Gold pushes lower in run-up to next week’s FOMC meeting
Lundin projects a $1.4 trillion federal government interest expense at 4.5% fed funds rate

(USAGOLD – 10/28/2022) – Gold pushed lower this morning as it often does in the run-up to FOMC meetings. It is down $12 at $1654. Silver is down 24¢ at $19.43. Gold Newsletter‘s Brien Lundin believes that the greatest impediment to future Fed rate hikes is the intolerable interest expense it would impose on the federal government. He says that there is “no doubt that the costs are going to soon soar well past $1 trillion” and put up a roadblock to any further rate hikes. (By way of perspective, total federal tax revenue for 2021 was $2.76 trillion.) The resulting negative real rate environment, he concludes, will be “extremely positive for precious metals and other tangible assets.”

“This is the direct result of a federal debt that has more than tripled since the Great Financial Crisis of 2008,” he contends, “and is 64% higher than the last time the Fed tried to raise interest rates. But today the Fed is raising rates at more than three times the speed it has at any time since the 1980s. .… If the consensus range were to be reached (4.5% on the Fed funds rate), the yearly cost to service the federal debt would reach toward $1.4 trillion, and rising. This is a stark reality that the market will now be forced to face, as we just received the initial third-quarter estimate of annualized federal interest expenses. The number is buried within the Bureau of Economic Analysis’ first estimate of third-quarter GDP, which was released just this morning. According to that report, the cost has soared to $736.579 billion.”

overlay line chart showing rising interest rates and the amount of interest paid on the national debt now at $736.5 billion
Sources: St. Louis Federal Reserve [FRED], US Bureau of Economic Analysis

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Gold drifts lower in quiet trading ahead of next week’s Fed meeting
 Computer trading has a ‘correlation to the US$, but no correlation to common sense.’

(USAGOLD – 10/27/2022) – Gold drifted lower in quiet trading ahead of next week’s Fed meeting. It is down $3 at $1664. Silver is down 20¢ at $19.46. The Bank of Canada surprised markets with a lower-than-expected rate increase yesterday. The sudden dovishness prompted Oanda’s Edward Moya to suggest that “expectations are growing for the Fed to shift to a half-point pace in December and if that seems more likely after next week, gold could have a nice breakout above the $1700 level.” (MarketWatch) Similarly, High Tech Strategist’s Fred Hickey sees gold and the US dollar at turning points based on managed money positioning in futures markets.

“I think we’re in the final innings of peak Fed hawkishness,” he tweeted recently. “Might not take an actual ‘pivot’ for overvalued $ to fall & gold to get going – just a bit of a turn. Everything’s in place: sentiment, investor positioning. Would catch many by surprise.…… COT open interest for gold very low – only 434K contracts – below almost all previous gold bottoms. Levered traders (Managed Money) net short 26K gold futures contracts (only other two times short – around 2015 & 2018 bottoms). Institutions heavily long US $.……Kinda nonsensical gold’s selling off because inflation’s remaining sticky – but that’s the world we’re in – where levered traders (including computers) have correlations to US$  – but no ‘correlation’ to common sense. But when something breaks & Fed pivots with inflation still high….”

chart grouping on COT gold positions, managed moneyChart courtesy of GoldChartsRUs.com

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Gold firms in early trading on four-day dollar slide
Traders weigh prospect of Fed restraint as economic indicators fall short of expectations

(USAGOLD – 10/26/2022) – The gold price firmed in early trading as the US dollar slid for the fourth day running, and investors began pinning their hopes on the Fed tempering its hawkish monetary stance. It is up $18 at $1673.50. Silver is up 28¢ at $19.69. Bloomberg ran an article this morning emphasizing the prospect of Fed restraint. A “slew of US data on manufacturing, home prices, and consumer confidence have all fallen short of economist estimates, underscoring the toll of Fed tightening,” it says. At the same time, improving prospects for the UK and the EU (each for their own reasons) have pushed their respective currencies higher against the dollar. The pound and euro are two prime components of the US dollar index.

Analyst Craig Hemke advises investors to keep an eye on the dollar index for clues as to when gold and silver might shake their current lethargy. “All bull and bear markets eventually come to an end,” he says in an advisory posted yesterday at the Sprott website, “and this one in the Dollar Index will end eventually too. When will it end? When the Fed finally halts their rate hike regime, of course. However, you must keep in mind that most ‘markets’ are generally forward-looking and proactive, not passive and reactive. With this in mind, perhaps we can look to the Dollar Index for clues before the Fed pauses and reverses. Maybe we should expect the Dollar Index to top and roll over in advance of this eventual policy shift and not as a response to the shift itself.” Hemke sees a break below the 50-day moving average at 110 on the dollar index as an indicator that “the uptrend has been broken.” This morning the dollar index is at 110.25.

Gold and the US Dollar Index
(2000 to present)
overlay line chart showing gold and the US dollar Index since 2000
Chart courtesy of TradingView.com • • • Click to enlarge

 

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Gold drifts lower in generally directionless, low-volume trading
‘Mighty currents have been playing out a tug-of-war with the gold price.’

(USAGOLD –10/24/2022) – Gold drifted lower this morning in generally directionless, low-volume trading. It is down $7 at $1646.50. Silver is down 31¢ at $18.99. Despite gold’s rangebound pricing thus far this year, Mercer’s Matt Scott sees merit in holding the metal as “one of the few assets that has tended to do well in a stagflationary environment.” (See chart) He explains the rangebound behavior despite the poor performance of stocks and bonds as the product of an “exceptionally strong dollar” – strength, he believes, that could be “imperiled” in the future as nation-states diversify away from it as a reserve holding.

“So far,” he says in a review published yesterday, “2022 has been a dramatic year for markets, to say the least, with a 60:40 portfolio returning -15.6% year to date – only the fourth time in a century that stocks and bonds have both fallen over two successive quarters. Gold, by contrast, has had a seemingly placid time of it, significantly up in Q1 but giving back most of those returns more recently (-6.4% year to date ), with its realized volatility subdued relative to equities in recent times. However, anyone who has watched the horror movie Lake Placid knows that the lake is far from placid. Beneath the surface, mighty currents have been playing out a tug-of-war with the gold price.”

Gold, Stocks, and the Misery Index during the Stagflationary 1970s
(% change, annual; Misery Index = Inflation + Unemployment)bar chart comparing the performance of gold, stocks and the Misery Index in the 1970s
Data sources: St. Louis Federal Reserve [FRED], MacroTrends.net • • • Click to enlarge

Notable Quotable
Get what you can, and keep what you have, that’s the way to get rich.… [T]he demand for gold persists due to the fact that during periods of instability and higher price volatility, the price of gold tends to have a negative correlation with the prices of other assets. This implies that in situations of financial stress, gold prices often rise while prices for other assets fall, thereby increasing the role of gold as a universal ‘diversifier’ of the investment portfolio, regardless of the source of financial stress. This differentiates gold from other ways to protect the value of your portfolio by using, for example, derivative financial instruments since these are focused on protecting the portfolio against some specific risks.” – Olegs Jemeljanov, The Data Driven Investor

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Gold turns lower in follow-up to Friday’s surprise rally
A gold rush is underway in India – festival demand up 595% over last year

(USAGOLD –10/24/2022) – Gold turned lower to start the week after Friday’s surprise rally driven by the growing perception that problems in the global bond market might force the Fed to ease off the monetary brakes. It is down $8 at $1652. Silver is down 25¢ at $19.24. The incongruously low paper price of gold in the face of the current global economic turmoil is creating shortages and driving up premiums for the physical metal in key Asian markets.

On China’s Shanghai Exchange, for example, gold bullion is running about $43 per ounce over US prices, according to the World Gold Council. As a result, major wholesale bullion suppliers like Standard Chartered and JP Morgan are channeling metal to China. India’s on-hand stockpiles are now at 10% of where they are typically this time of year, according to Tribune India. The resulting shortage, it reports, could “force Indian buyers to start paying hefty premiums for supplies in the approaching peak-demand season.” Over this past weekend, Business Standard reported a gold rush is underway in India, with festival jewelry orders jumping 595% over last year.

Gold in Indian rupee, Chinese yuan, US dollars
(%, year to date)
overlay chart showing the price of gold in India rupee, Chinese yuan and US follar year to date
Chart courtesy of TradingView.com

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Gold drifts lower to end week dominated by hawkish Fed speak, stagflation anxiety
Roubini says we are headed for the ‘worst of the 1970s and the Global Financial Crisis’

(USAGOLD – 10/202022) – Gold drifted marginally lower to end a week dominated by hawkish Fed speak, rocketing Treasury yields, and lingering investor anxiety about the inflation-recession double whammy. It is down $4 at $1626.50. Silver is down 30¢ at $18.43. Noriel Roubini told Bloomberg recently his conviction is only growing that the world is headed for disastrous stagflation – the “worst of the 1970s and the Global Financial Crisis” combined. “We’re already in a real time bomb in terms of social and political pressures,” he says. “And an economic crisis and a financial crisis and a geopolitical crisis is gonna make these things much worse.”

“The first example is exactly the [Bank of England]. Faced with a financial shock, what’d they do? They totally wimped out and they go back to MMT. So that’s going to happen across the board,” he says. “I don’t believe central banks when they say ‘we’re going to fight inflation at any cost,’ because they have a delusion of either a soft landing or a hard landing that is short and shallow – two quarters of negative growth and then you return to growth and easing. That’s not going to happen. It’s going to get ugly, the recession, and you’ll have a financial crisis.”

ramirez suggesting Biden like Carter with stagflation in the wingsCartoon courtesy of MichaelPRamirez.com

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Gold regains some of yesterday’s lost ground
‘To serve as natural money is gold’s highest purpose.” – James Turk

(USAGOL” – 10/20/2022) – Gold regained some of yesterday’s lost ground in the early going as Asian currencies and bond yields stabilized. It is up $8 at $1639.50. Silver is up 24¢ at $18.77. October has not been a particularly good month for precious metals on the price front. Nevertheless, demand globally remains strong. James Turk puts his finger on why that might be in an essay posted yesterday at the Mises Institute – and it has to do with gold’s history as a store of value. “If we listen to gold,” he says, “its message is loud and clear – gold is money. To serve as natural money is gold’s highest purpose.”

“Although gold these days rarely circulates as currency because of government-imposed restrictions and impediments,” continues the long-time gold market analyst, “gold still retains all the features that explain why humanity in prehistory chose it to be money. Gold is natural money, or stated another way, nature’s money is gold… We can ponder whether this outcome results from fortuitous chance or from the intelligent design of a creator endowing the earth’s resources providentially to equip humanity with natural money. Regardless of gold’s origin, which is unknowable, it cannot be denied that gold is money and is as useful today as any time in history.”

Gold average annual prices
(1971-October 2022)bar chart showing average annual gold price 1971-Aug22
Data source: MacroTrends.net

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Gold takes sharp turn to the south on abrupt decline in major Asian currencies
‘Land mines hidden across the investment landscape’ due to policy extremes

(USAGOLD – 10/19/2022) – Gold took a sharp turn to the south in overnight trading in concert with equally abrupt declines in both the Chinese yuan and Japanese yen (See chart). It is down $17 at $1636.50. Silver is down 24¢ at $18.52. Not helping matters, the yield on both the 10-year Treasury and 10-year gilt (UK) pushed back over the 4% level – signaling major weakness in the bond market. Though such market renderings are a plus for the US dollar, they signal acute financial danger almost everywhere else. Citing the near collapse of British pension funds in recent weeks, Bloomberg Market’s Garfield Reynolds says, “there are almost certainly other land mines hidden across the investment landscape, created by the extremes in monetary and fiscal policy of the past few years.”

“Never in the history of modern markets,” he warns, “have global policymakers bought such a large proportion of their own bond markets, repressing yields and distorting trading conditions. Now the plan is to unwind all of this and, of course, central bankers have been carefully modeling their way toward that transition based on historical data that mostly covers the era before the massive growth in QE took place. Here’s hoping any such modeling doesn’t run into the sort of reality check that hit UK pensions.”

Gold, Chinese yuan and Japanese yen
(One day, yuan and yen inverted)
overlay line chart showing gold, yuan and yen for 10-19-2022
Chart courtesy of TradingView.com • • • Click to enlarge

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Gold marginally higher in quiet trading
Hansen says inflation reality could trigger ‘major, gold supportive realignment’

(USAGOLD – 10-18-2022) – Gold is marginally higher this morning in quiet, featureless trading. It is up $3 at $1656. Silver is up 13¢ at $18.87. Saxo Bank’s Ole Hansen says that gold recently “caught a bid” on expectations the Fed was close to reaching peak hawkishness. “While the short squeeze turned out to be premature,” he says, “it highlights the upside potential to prices when the tides turn. I.e., when the market senses that US yields have reached a peak from where they can drift lower.”

“Looking ahead,” he continues in a report released this morning, “we see no reason to change our long-term bullish view on gold, with support potentially coming from the risk of a policy mistake sending US economic growth, the dollar and bond yields lower. In addition, we fear that the long-term inflation level may end up at a higher level than is currently being priced in by the market. Failure to bring long-term inflation down towards market expectations (See chart.) may trigger a major, and gold supportive, realignment between (rising) breakeven yields and (falling) real yields.”

Inflation expectations vs. headline inflation rate
overlay chart showing 10-year inflation expectations versus inflation reality
Sources: St. Louis Federal Reserve [FRED], Cleveland Federal Reserve, Bureau of Labor Statistics

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Gold tracks to the upside after last week’s inflation-induced turmoil
‘Central banks now unable to control the forces they summoned’

(USAGOLD) – 10/17-2022) – Gold is tracking to the upside this morning in an attempt to regain its footing after last week’s inflation-induced turmoil. It is up $20 at $1667. Silver is up 44¢ at $18.81. The New York Sun posted an engaging editorial over the weekend on the power of central banks to alter the course of economic affairs – a show of force, by the way, that has already presented a raft of unintended consequences in the economy and financial markets.

“Such power grabs,” says the Sun, “are enabled, in part, by the abandonment of the gold exchange standard, which imposed a tight discipline on central banks. The convertibility of currency into gold or silver placed a natural limit on how much money the banks could pump into circulation. In the decades of our experiment with fiat currency, [economist Judy] Shelton explains, ‘central banks can create money with no questions asked’ and thus ‘manipulate the cost of capital, or counteract movements in financial markets.’ Central banks created trillions under Quantitative Easing, James Grant writes, calling dollars ‘into existence as a sorcerer might summon the spirits.’ He explains neither wand nor printing press was needed: ‘Taps on a keyboard did the heavy lifting.’ Yet like the hapless sorcerer’s apprentice, the bankers are now unable to control the forces they summoned.”

Editor’s note: Though we agree with the Sun’s (and the Shelton/Grant) cause and effect, we do not see, as the publication advises, nation-states returning to the gold standard anytime soon. In line with that assessment, we stick with our long-standing advice that ordinary citizens are best served by putting themselves on the gold standard through private ownership of coins and bullion.

Gold and Money Supply (M2)
(Log scale, 2007-2022)
overlay line chart showing growth of money and supply and corresponding appreciation of the price of gold
Chart courtesy of TradingView.com

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Gold drifts lower as investors continue to sort out yesterday’s hot inflation report
‘High Noon on Threadneedle Street’ as gold demand skyrockets in Britain

(USAGOLD – 10/14/2022) – Gold drifted lower this morning as investors continued to sort out the ramifications of yesterday’s hot inflation report. It is down $7 at $1661.50. Silver is down 15¢ at $18.80. The markets, it seems, are having a very difficult time assimilating yesterday’s numbers. Bank of England’s John Bailey has set today as the deadline for withdrawing support from UK’s bond market and, by proxy, a large swathe of its pension industry. “Britain,” says John Authers in a Bloomberg Big Take this morning, “is now providing a test case of what happens when higher rates threaten to bring down [financial] structures.”

“A few more incidents of what Ian Harnett of Absolute Strategy Research Ltd. in London refers to as ‘Quantitative Destruction’ (what happens when Quantitative Easing is followed by Creative Destruction),” he explains, “could force a general retreat from tighter money, even if the war against inflation remains un-won. ‘Many of the institutional financial structures that thrived in the last decade depended on the low level and volatility of rates that QE delivered,’ Harnett said. ‘These conditions are now changing violently. Many of these financial structures and institutions may also change just as violently.'” Gold demand, by the way, has skyrocketed in Britain. The Royal Mint reported record profits this past year as investors moved to shore up their portfolios against a range of systemic risks.

ramriez cartoon on the Fed making a slight overcorrection on inflationCartoon courtesy of MichaelPRamirez.com

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Gold plummets on inflation reading above expectations
This morning’s data undermines Wall Street’s operative inflation scenario

(USAGOLD – 10/13/2022) – Gold plummeted after this morning’s inflation data release. It is down $21.50 at $1654. Silver is down 54¢ at $18.60. Both headline and core inflation came in above expectations – not what the Fed was hoping for. Professional investors thus far have largely bought into Wall Street’s operative scenario that the inflation rate has peaked and will now move lower, at some point meeting the rising yield. This morning’s inflation data is likely to cast doubt on that assumption diminishing the prospect of a Fed pivot. Markets, including gold, are reacting accordingly.

“This report,” says Federated Hermes’ Steve Chiavarone, “raises the risk that we may see a new cycle high in headline inflation before the end of the year. With energy prices moving back up, a mid-90s oil price in December could see us surpass the 9.1% headline peak from June… Looking at the components, what is most worrying is the big jump in services. Service inflation is the most sticky. This is where both shelter prices and wages reign supreme.”

Editor’s note: We offer our standard caution on important data releases……The initial reaction is not always the ultimate reaction. It may take some time for markets to sort out the implications of this morning’s numbers.

Headline inflation vs 10-year Treasury yield
(%, five years)
overlay chart showing the gap between the yield on 10 year Treasuries and the headline inflation rate
Chart courtesy of TradingView.com

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Gold is relatively subdued following this morning’s producer price reading
Money Week reports ‘smart money’ buying the yellow metal

(USAGOLD – 10/12/2022) – Gold’s reaction to this morning’s wholesale inflation reading (+8.5%) has been relatively subdued thus far. It is up $3 at $1671.50. Silver is level at $19.23. Likewise, the across-the-board market reaction has been subdued – at least for now. Tomorrow the Labor Department will release consumer price data, and we could see a more consequential reaction then. Money Week’s Dominic Frisby says the gold price is depressed at the moment, but demand for the physical metal has never been higher. Smart money, he says, is buying.

“One of the few bright spots in this market is what [Metals Daily’s] Ross Norman calls ‘the literate investor’ who continues to support it,” he writes in a report posted this morning. “[Joshua] Saul of Pure Gold makes a similar observation. His company makes a point of talking to clients as they buy and sell, to understand their motivations. As a result, they build up a lot of qualitative data. ‘Everyone’s looking to protect their wealth in a time when things are really uncertain.’…There has been a notable increase in buyers from the financial world. ‘Traders, investment bankers, financial services, accountants, lawyers – they’ve been buying large sums.’ I find this notable: ‘Their trade sizes are bigger. The median trade size is probably three times bigger than it was a year ago – and during Covid.’ Saul says many of them are worried about what is going on behind the scenes at the banks. ‘These are considered investments, where there is a lack of alternatives.'”

Chart courtesy of GoldChartsRUs.com

Chart note: The U.S. Mint is selling gold bullion coins at a pace roughly equivalent to last year’s strong showing – data that supports Frisby’s claim of high demand for physical metal. This chart shows aggregate sales through September.

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Gold pushes marginally to the upside ahead of this week’s inflation numbers
Hathaway counsels patience, saying the wait on gold is nearing an end

(USAGOLD – 10/11/2022) – Gold pushed marginally to the upside in early trading ahead of all-important inflation numbers tomorrow and Thursday. It is up $3 at $1674. Silver is down 17¢ at $19.58. The Bank of England’s expansion of bond purchases overnight renewed concerns about the stability of global bond markets. Sprott’s John Hathaway, an analyst with decades of gold market experience, counsels patience with gold’s current price action. He believes that, like the Bank of England, the Fed will be forced to abort its anti-inflation mission” by “exigent circumstances.” When it does, he says, Investors will return to gold as a safe haven asset. (Those circumstances are detailed in an analysis posted yesterday on the Sprott website.)

“Most likely, inflation will survive an aborted Fed assault and public policy will revert to papering over mistakes as in 2008,” he advises. “If so, the outperformance of gold relative to financial assets may last for years. The historical precedent is from year-end 1968 (DJII 903.11) to year-end 1981 (DJII 932.95). During the same stretch, gold rose from $39.11 to $460/oz.… The real investment challenge, all too familiar to the contrarian, is to muster the patience to wait. To paraphrase the words of stock trader Jesse Livermore, ‘get right and sit tight. It was never my thinking that made big money for me. It was always my sitting. Got that? My sitting tight’. The U.S. dollar lifeboat is no longer safe for occupancy. The wait for gold to be rediscovered as a safe haven is nearing an end.”

Gold, silver and stocks
(% gain, 1970-1980)
overlay line chart showing gold, silver and stocks 1970-1979
Chart courtesy of TradingView.com • • • Click to enlarge

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Gold takes a tumble ahead of this week’s inflation numbers
Atlas Pulse sticks with its $7000 gold forecast by 2030 

(USAGOLD – 10/10/2022) – Gold took a tumble this morning in advance of this week’s all-important inflation readings scheduled for Wednesday (producer prices) and Thursday (consumer prices). It is down $17 at $1679. Silver is down 34¢ at $19.88. Trading Economics forecasts a 7.2% gain in wholesale inflation and an 8.1% gain in consumer prices. Both numbers are 0.1% lower than the previous readings – and not enough, we would think, to dissuade the Fed from staying the course on current monetary policy. Hence, the glum market action this morning. Undaunted by weaker prices thus far this year, Atlas Pulse’s Charlie Morris is sticking with his 2020 forecast that gold will reach $7000 by 2030.

He bases that bullish outlook on the “massively overvalued” US dollar going into a steady decline over the next decade – a trend, he says, that will provide tailwinds for gold. “The dollar is high enough, the gold regime is fully bullish, and Chinese demand is strong,” he writes in the latest edition of his newsletter. “Yet the valuation poses a risk assuming the Fed follows through with the tightening program to the bitter end. They likely won’t because the financial system will spectacularly blow up if they do.… Furthermore, the evidence builds that the bond market isn’t a great forecaster and inflation expectations are simply wrong. The real conundrum is why investors are selling gold when it is obvious that, at times like these, a little gold in a portfolio is unlikely to be a bad thing.”

Gold and the US Dollar Index (DXY)
(Log scale, 1971 to present)
overlay chart showing gold and the dollar index from 1971 to present, log scale
Chart courtesy of TradingView.com • • • Click to enlarge

 

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Gold drifts lower in quiet, directionless trading
‘In the 45 years I have been an investor, I cannot recall a more dangerous period than today.’

(USAGOLD – 10/7/2022) – Gold drifted lower this morning in quiet, directionless trading as investors remained unsettled about inflation’s future and unnerved by Fed tightening policies. It is down $2.50 at $1712. Silver is level at $20.73. London-based John Ruffer (Ruffer Investment Review) says that in his forty-five years as an investor, he “cannot recall a more dangerous period than today.” It is a time when “plentiful liquidity” is “overwhelmingly attractive.” He says opportunities will arise in the aftermath of a crisis, but “first, we have to get through the storm.”

“When there’s no money in the system and the channels of its creation are blocked,” he writes in an advisory released yesterday, “many fine investments, which, in normal circumstances would be mouth-watering to own, are unsellable. If, at that point, you need money, and all you have are assets – watch out! We are watching out.… We see danger ahead. Markets are still too high, and protection is expensive in an increasingly nervous world; common sense suggests one should invest conservatively, and in safe assets.” Though Ruffer does not mention gold in this particular advisory, the firm has consistently advocated it over the years as a sensible portfolio holding for the times. (Please see Ruffer Radio’s “Gold Matters,” September 2020)

Annotated chart showing the price of gold during the gold standard and fiat money eras

Notable Quotable
“It’s getting harder to buy and sell Treasuries in large quantities without those trades moving the market. Market depth, as the measure is known, last week hit the worst level since the pandemic crash of 2020, when the Federal Reserve was forced into a massive intervention. With fear of a global recession, escalating geopolitical tensions thanks to Russia’s war on Ukraine, the UK’s tax-cut fiasco and the potential for further defaults by developing nations, investors may not be able to rely on Treasuries as the haven they once were.” –

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Gold inches higher in quiet trading
Lundin sees rising interest on the national debt as triggering Fed policy pivot

(USAGOLD – 10/6/2022) – Gold inched higher in quiet trading ahead of jobs numbers scheduled for today and tomorrow. It is up $2 at $1721. Silver is up 8¢ at $20.78. Gold Newsletter‘s Brien Lundin sees the national debt – more specifically interest on the national debt – as the trigger mechanism for a future Fed policy pivot. “I just noticed a New York Times alert in my email inbox,” he writes in a recent client update,” that ‘U.S. National Debt Tops $31 Trillion for First Time,’ with the note that ‘America’s borrowing binge has long been viewed as sustainable because of historically low interest rates. But as rates rise, the nation’s fiscal woes are getting worse.'”

“In other words,” he continues, “the debt-service conundrum is starting to reach headline status, just as I’ve been predicting. The true severity of the issue has yet to sink in, however. That New York Times story notes that the size of the debt and higher interest rates are being forecast to cost an extra $1 trillion over the next decade. As I’ve demonstrated many times in recent months, we’re going to have to pay $1 trillion in debt-service costs per year. And that fact is going to become obvious over the next month or so. In short, enjoy this rally in gold and silver…but know that there’s more to come.”

Interest paid on the national debt
(Annual, billions of dollars)
bara chart showing the net interest paid annually on the national debt
Sources: St. Louis Federal Reserve [FRED], US Bureau of Economic Analysis

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Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |

Gold gives up some of its recent gains as pivot sentiment swings back into the red
Australia’s ABC Bullion makes an interesting distinction about gold worth passing along

(USAGOLD –10/5/2022) – Gold gave up some of its recent gains this morning as the sentiment needle on a Fed pivot swung back into the red zone. It is down $16 at $1712.50. Silver is down 61¢ at $20.53. Counting yesterday’s run of speeches from Fed officials, no less than eleven central bank officials will have delivered their take on the inflation fight before the week is out. The markets, it seems, have decided to hunker down and let the storm pass. Australia’s ABC Bullion makes an interesting distinction about gold we thought worth passing along this morning.

“Because gold is not an investment like shares in a company,” it says, “and has no credit risk, there is no chance it can default or go bankrupt. As a result, while it’s volatile, and can suffer drawdowns, those drawdowns inevitably resolve themselves over time. As an investor, you therefore have some comfort that any drawdown in the gold price is simply part of the market cycle (gold is not immune to bull and bear markets), rather than a potential message that the drawdown will be permanent. Investments in individual companies offer no such comfort. While a drawdown in the price of a particular stock may just be part of the market cycle and an overall stock market sell off, it could also be a warning sign that the company in question is facing serious problems and could be headed toward bankruptcy.”

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Posted in Daily Market Report, dailyquotes, Today's top gold news and opinion |