Author Archives: Daily Market Report

Gold struggles to go positive ahead of tomorrow’s consumer price report
Goldman still bullish on commodities, sees 48% gain for gold over next 12 months

(USAGOLD – 7/12/2022) – Gold is struggling to go positive ahead of tomorrow’s consumer price report and Thursday’s wholesale price reading. It is up $2 at $1738.50. Silver continued to grind lower – down 25¢ at $18.95. The consensus expectation is that consumer prices will post an 8.8% year-over-year gain. While that might prompt a more resolute Fed, it might also give impetus to the minority view that the current rate hike plan will not be enough to tame the surging inflation rate. (Please visit or scroll to this morning’s posts at Top Gold News and Opinion.)

Goldman Sachs is sticking with its bullish view on commodities, projecting a 37% return over the next 12 months for the sector overall and a 48% gain for gold. In a client note cited at Trading View, the firm reports being overweight in precious metals and energy, saying the risk of a recession “boosts the appeal of gold as a safe haven.” Even though commodities have declined roughly 18% from their year-to-date peak, the outperformance has been remarkable, says Goldman, emphasizing that “an allocation to a true real asset like commodities remains a necessity to protect a multi-asset portfolio.”

ramirez cartoon on the crashing U.S. economy under the American rescue planCartoon courtesy of MichaelPRamirez.com

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

Gold drifts lower in listless summertime trading
Lundin says there are limits as to how far the Fed can go in its tightening program

(USAGOLD – 7/11/2022) – Gold drifted lower this morning in listless summertime trading as the dollar’s climb continued and recession fears weighed heavily on investor sentiment. It is down $7 at $1738. Silver is down 12¢ at $19.27. The chief motivation for gold’s correction over the past several months has been the Fed’s anti-inflation monetary policy, but long-time gold market analyst Brien Lundin believes there are limits as to how far it can go.

“Powell & Company’s rate hike campaign,” he says in an advisory posted Friday at the Gold Newsletter website, “will be halted by one unavoidable fact: The federal debt is about 130% of GDP today, as compared with 30% when Volcker was raising rates and crashing the economy to extinguish inflation. In fact, the federal debt is fully three times larger than it was at the time of the Great Financial Crisis in 2008. The simple math deriving from a number so large means that the Fed will be powerless to raise rates much more without generating debt service costs that will overwhelm the federal budget. I think this fact will become clear within a few months, leading the markets to anticipate a Fed pivot…and sending metals and mining shares on a much-needed rebound. In the meantime, we remain mired in a summertime slowdown that is typical in terms of timing while perhaps atypical in the degree of the declines. For contrarians with both cash and courage, this means it’s buying season.”

lince chart showing the US federal debt as a percent of Gross Domestic Product 1970-2021
Sources: St. Louis Federal Reserve [FRED], Office of Management and Budget

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Gold closes out a tumultuous week dominated by the surging U.S. dollar index
Frisby says when the dollar turns, ‘it will touch off a mad scramble’

(USAGOLD – 7/8/2022) – Gold drifted sideways in quiet early trading as it closes out a tumultuous week dominated by the surging the U.S. dollar index. It is up $1 at $1738 (and down 3.5% on the week). Silver is down 2¢ at $19.28 (and down 4.1% on the week). The dollar index gained 1.9% on the week. Financial markets, in general, have been in a state of nervous decline ever since the Fed went public with its plans to tighten monetary policy. The U.S. dollar has been the lone exception shining brightly through it all. It is now trading at levels not seen since the early 2000s. London-based market analyst Dominic Frisby sees “a mad scramble” ahead when the dollar finally reverses course.

“I will say this,” says Frisby in an article posted yesterday at MoneyWeek, “‘long dollar’ is a crowded trade. Everybody’s talking about it. When it turns – and it will – there’s going to be a lot of money made on the other side of this trade. F.X. traders are going to be all over it. Long anything anti-dollar – gold, the euro, perhaps even the yen.” As for silver and platinum, “there will come a time in the future,” he says, “when we’ll be wondering how on earth it was possible to buy these metals at these prices.”

Gold, silver, platinum, and the U.S. Dollar Index
(% gain or loss, one year)overlay line chart showing gold silver platinum and the US dollar performances over past 12 months
Chart courtesy of TradingView.com

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Gold manages to post a marginal gain in early trading
Felder says gold may be as ‘undeservedly cheap as it was a half-century ago.’

(USAGOLD – 7/7/2022) – Gold managed to post a marginal gain in early trading as it attempted to right itself after the pounding of the past couple of days. It is up $5 at $1746. Silver is up 20¢ at $19.48. As mentioned yesterday, dollar strength triggered the sell-off, but the bulk of the downside came from follow-on technical selling that, in our view, had little to do with the economic fundamentals. Along these lines, we turn this morning to Jesse Felder, the long-time money manager formerly with Bear Stearns. In a short post at Seeking Alpha, he suggests that if inflation fails to return to the 2% level, gold at current prices will prove to be dramatically undervalued.

“Equity prices remain extremely elevated while gold prices remain relatively depressed,” he says. “Episodes of rising inflation typically see just the opposite. Therefore, if inflation proves more durable than markets currently discount, the recent volatility may be merely a prelude to a more significant repricing across a number of asset classes. In fact, the level of CPI today already suggests that gold, relative to equities, may be just about as undeservedly cheap as it was a half-century ago, the last time inflation really became a problem. And if inflation remains elevated, gold prices could have a terrific amount of upside ahead, especially relative to stock prices.”

Ramirez cartoon on Yellen's botched inflation callCartoon courtesy of MichaelPRamirez.com

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Gold attempts to regain its footing but the ongoing dollar rally is making it difficult
‘Bear in mind the bigger picture,’ advises Swiss-based BFI Capital Group

(USAGOLD – 7/6/2022) – Gold is attempting to regain its footing after yesterday’s $42 decline, but the dollar’s ongoing rally is making the task difficult. It is down $1 at $1766. Silver is up 6¢ at $19.35. Though the dollar’s strong performance yesterday triggered the sell-off, technical trading did the bulk of the damage after both metals broke through psychologically important support levels. BFI Capital Group, the Swiss-based investment firm, sees gold as immersed in a consolidation phase since hitting record highs this past March. “Nothing,” it says, “goes up in a straight line.”

“Seasoned, long-term precious metals holders,” it notes, “are bound to recognize this period for what it really is: a solid buying opportunity. Of course, one of the reasons that the yellow metal is still under significant selling pressure is the Fed’s policy reversal and the return to tightening and higher interest rates. This alone could be construed as a negative development for precious metals in general, and it could cloud gold’s performance outlook. Nevertheless, context is everything, and it is essential for investors to bear in mind the bigger picture here.”

“In the current, extremely precarious, global economic and market conditions,” it concludes, “investors cannot afford not to have a precious metals allocation.” The firm expects gold to ultimately “retrace the highs we saw over the last months.” (Please see The Great Tightening, BFI Capital Group, July 2022)

The Misery Index
(Inflation + Unemployment)Line chart showing the Misery Index 2015 to present
Sources: St. Louis Federal Reserve {FRED], Bureau of Labor Statistics

Chart note: Disastrous unemployment numbers drove the spike in 2020. Inflation is driving the current uptrend. Should a recession push the unemployment rate higher, and it is almost certain it would, and inflation simultaneously proves to be stubborn, the Misery Index could produce numbers last seen in the stagflationary 1970s. For many investors, individual and professional alike, stagflation heads the list of “bigger picture” concerns.

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Gold slides back to the $1800 level in early trading
Tech analyst sees Friday’s solid bounce as a ‘dynamic pivot and possible key reversal’

(USAGOLD –7/5/2022) – Gold slid back to just above the $1800 mark in early trading as the dollar advanced sharply against the euro and markets continued to struggle with a combination of inflation and recession concerns. It is down $9 at $1801.50. Silver is down 24¢ at $19.80. The US dollar index is up 10.4% year to date – seemingly the only beneficiary of current Fed policy. Gold is level on the year. Despite the dollar headwind, technical analyst Gary Wagner sees last Friday’s solid bounce off the $1783 level as “a dynamic pivot and possible key reversal” for the gold market. ANZ Bank also sees the metal finding support at current price levels despite “aggressive rate hikes and a stronger dollar” and upside potential to $1900 per ounce, according to a post at FXStreet this morning.

Gold price
(Five-day)
line chart showing gold five day pricing
Chart courtesy of TradingView.com

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Gold drops sharply in thin pre-holiday trading, BEA reports 1.6% drop in real GDP
Like before the Great Depression, ‘the Fed did in fact raise rates into economic weakness.’

(USAGOLD – 7/1/2022) – Gold dropped sharply in thin pre-holiday trading driven by recession fears and the prospect of further central bank tightening. It is down $21 at $1788. Silver is down 62¢ at $19.75. We came across a brief synopsis at ZeroHedge that breaks down what’s behind collapsing financial markets as well as anything we have seen of late. Citing the recently released Bureau of Economic Analysis report on real GDP (which shows it dropping by 1.6% in the first quarter of 2022), the pseudonymous Tyler Durden writes:

“It’s important to keep in mind that this plunge in GDP occurred BEFORE the Federal Reserve started raising interest rates. Meaning, the Fed did in fact raise rates into economic weakness, much like they did during the onset of the Great Depression, causing even more damage to the economy in the process and prolonging the effects of the crisis. The difference this time is that we do not face a standard deflationary threat, but a stagflationary one. It’s a completely different ballgame.”

There have been rumblings of late that the Fed is compounding its bad inflation call with another miss on the rapidly developing slowdown. For the record, we include a chart this morning showing the first half performances for gold, silver, stocks, and bonds. Gold held its own through the first half, but the recessionary effect on the silver price is plainly evident. Stocks suffered their worst first-half decline since the 1960s, and bonds posted their worst first half since the early 1970s.

All in all, it has not been a very good year for investment markets, although we are grateful for gold’s stubbornness. If stagflation is where we are headed, it might be helpful to recall how gold and silver performed the last time it came calling in the 1970s. All said, the July 4th break is well-timed.

Gold, silver, Dow Jones Industrial Average, and Bonds (TLT)
(% gain or loss, year to date (6-30-2022)

overlay line chart showing gold silver stocks bonds performances first half 2022
Chart courtesy of TradingView.com • • • Click to enlarge

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Gold edges higher in the aftermath of the Sintra central bank conclave
‘It remains unconventional despite its extremely long and illustrious track record.’

(USAGOLD –6/30/2022) – Gold edged higher in the aftermath of the central bank conclave in Sintra, Portugal, as markets generally dug in for more tightening and the threat of a recession. It is up $3 at $1823. Silver is down 10¢ at $20.71. ByteTree’s Charlie Erith addresses a question topmost on many gold investors’ minds. Why is gold so widely ignored in professional money circles? He comes away with a very down-to-earth answer: They do not make significant fees by promoting it like they do with stocks and bonds. In fact, he says, the incentive is to ridicule it.

“[Warren Buffett] points out that it doesn’t pay dividends or generate a return on capital,” he writes in an analysis posted on the firm’s website. “Fine. But it also doesn’t have profit warnings, rights issues, lawsuits, new competition, patent cliffs, asset write-downs, leverage, liquidity mismatches, management scandals, or fraud. It is just a blob of uncopiable metal that sits there, quietly ticking higher over long stretches of time as governments debase currencies.… Central banks and doomsters are the outliers who understand this. For the rest of the world’s investors, ownership of gold as part of a long-term savings strategy remains unconventional, despite its extremely long and illustrious track record. This has particularly been the case during eras of high inflation and political unrest, such as we face now.”

Bar chart showing annual gain or loss in the price of gold 2000 to present
Click to enlarge

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Gold goes positive ahead of Powell, Lagarde, Bailey panel discussion
Dominic Frisby says gold is ‘the one part of my portfolio that isn’t keeping me awake at night’

(USAGOLD – 6/29/2022) – Gold moved to the positive side of the price ledger this morning ahead of today’s panel discussion in Portugal featuring Jerome Powell, Christine Lagarde, and Andrew Bailey – all beleaguered heads of their respective central banks. It is up $12 at $1834. Silver is up 17¢ at $21.10. Such joint appearances are rare, so it will be a matter of interest in financial markets how they respond to the near double-digit global inflation rate. Dominic Frisby, the UK-based market commentator with a flamboyant style, has always given gold mixed but generally favorable reviews. “I own gold and I’m glad I do,” he writes in his latest posted at MoneyWeek. “I may be rude about it, but I love it. And it’s the one part of my portfolio that isn’t keeping me awake at night. In fact, it’s so boring, it’s helping me to sleep.”

He goes on to say that the June through August summertime lull (See charts below) is “usually, the best time of year to buy…. I stress ‘usually’, not always. A summer low in gold is frequent enough to be noticeable but not consistent enough to be reliable. A bit like your errant teenager’s mood swings.…[T]oday we are meandering around the $1,820 mark, which is also where the 52-week moving average lies. That’s actually quite a telling little fact. For all the declines we’ve seen elsewhere in stocks, bonds and crypto, and the ensuing erosion of wealth, gold sits at its one-year average. In other words, it’s done what it’s supposed to: preserved its value, and preserved your capital. And that’s with the US dollar so strong.”

overlay line chart showing seasonal trading patterns for gold

overlay line chart showing seasonal trading patterns for silver

Charts courtesy of the Moore Research Center (541-639-5340) • • • Click to enlarge

Chart[s] note: “Seasonal patterns,” explains Moore Research Center, “are displayed against a numerical index from 0 to 100 (the right-hand vertical scale). The graph reaching 0 represents the seasonal low (the time of the year when prices are most consistently low); the graph at 100 represents the seasonal high (when prices are most consistently high). The graph at 20 represents when prices have tended to be in the lower 20% of the year’s eventual price range.”

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Gold drifts sideways despite a weaker dollar and generally firmer commodities
Research firm Zacks says buying ‘while prices are not too high seems wise’

(USAGOLD – 6/28/2022) – Gold drifted sideways in quiet summertime trading despite a weaker dollar and a general firming trend in the commodities complex. It is level at $1825. Silver is up 6¢ at $21.29. Gold’s short-term fate continues to be tied inversely to that of the US dollar index – largely manifested through software-based trading systems. That preoccupation with the dollar index has translated to keeping a lid on prices over the past few weeks, though some might argue that gold’s holding its own against the dollar’s onslaught has been a good thing.

“In addition to the interest rate hikes and value in tech phenomena described above, there is the strong dollar and softer demand from the largest consumer China (because it now has economic issues of its own),” says Zacks, the research firm, in an analysis posted at the NASDAQ website. “These are downward pressures on the yellow metal. But there are also some supporting factors. The G-7 nations have decided to stop buying Russian gold, which could raise prices. A more significant factor that isn’t great news for the economy is the increasing possibility of a big recession, not only in the U.S but globally. The likelihood of this happening is increasing every day, which means that putting at least some of your money into gold and related assets while prices are not too high seems wise.”

Gold and the US Dollar Index
(%, year to date)
overlay line chart showing gold and the US dollar index year to date in percent
Chart courtesy of TradingView.com

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Gold turns to the upside on Russia concerns
Gold export sanctions, sovereign debt default weigh on market psychology 

USAGOLD – 6/27/2022) – Gold turned to the upside this morning as traders weighed the impact of the G-7’s ban on Russian gold exports and Russia’s first sovereign debt default since 1918. It is up $6.50 at $1835.50. Silver is up 25¢ at $21.47. Bloomberg was quick to report that the ban on Russian gold exports was “largely symbolic,” given flows had already been restricted. There may be more to the story, though, than meets the eye.

At 300 metric tonnes per year, Russia is the third-largest gold producer in the world behind China (370 tonnes) and Australia (330 tonnes). It exported roughly $19 billion in gold in 2020 (about 340 tonnes), its second-largest export after energy products and the fourth largest in the world, according to the OEC – so its market presence is not insignificant. Based on Trading Economics data, Russia increased its exports in 2021 to nearly $50 billion despite its policy to channel domestic production into central bank reserves, which would put its supply contribution at just over 850 tonnes. An argument, in short, can be made that the stepped-up sales in 2021 contributed to gold’s rangebound price behavior and that the export ban could present problems on the supply side similar to what has occurred in the oil and gas markets.

Russia Gold Exports
($, monthly)
bar chart showing Russia gold exports through January 2022
Chart courtesy of TradingEconomics.com

 

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Gold bounces around the $1825 level in quiet, end-of-week trading
‘The trend change in the inflation will last decades.’ – Goehring & Rozencwajg

(USAGOLD – 6/24/2022) – Gold bounced around the $1825 level in listless end-of-week trading that is beginning to take on the characteristics of the typical summertime lull – at least for now. It is up $2 at $1826.50. Silver is down 14¢ at $20.92. Some, though, see the quiet as symptomatic of something more telling than a case of the annual summer doldrums. “Pundits, market analysts, and investors remain in a state of confusion and hope that the trends of the previous cycle will return,” cautions Goehring & Rozencwajg in a report released yesterday. “Very few market commentators or investors have taken serious steps to protect themselves from the massive trend change that has now taken place.”

“The deflationary trend of the last 40 years is now over,” it continues. “A new inflationary trend is in place and will last longer and carry on farther than anyone expects. Huge changes in investment flows are about to take place with large implications. Although inflation-sensitive assets have already begun to radically outperform bonds and the general stock market, investors’ interests in these assets remains subdued.… Given the significant amount of money printed and the huge amount of debt now accumulated throughout the world, we believe the trend change in inflation as telegraphed by the 2019 BusinessWeek cover story* will last decades. We also believe the recent outperformance of inflation-sensitive assets will last for years as well. There is still plenty of opportunity to not only protect yourself from the ravages of inflation, but to profit by it as well.”

* Is Inflation dead? (Bloomberg Businessweek, April 2019)…Goehring & Rozencwajg see this cover story in a major publication as an important contrarian indicator.

Gold, stocks and bonds (TLT)
(% change, year to date)
overlay chart showing percent performance year to date for stocks, bonds and gold
Chart courtesy of TradingView.com • • • Click to enlarge

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Gold returns to downside amidst a growing sense of unease in financial markets
Klarman says there is no such thing as an ‘omniscient Federal Reserve’

(USAGOLD – 6/23/2022) – Gold returned to the downside this morning amidst elevated recession concerns, a firm dollar, and a growing sense of unease about where financial markets might be headed. It is down $7 at $1833. Silver is down 17¢ at $21.33. “The market has come to believe in an omniscient Federal Reserve, and it’s no such thing,” says Blaupost’s Seth Klarman, the highly regarded billionaire investor, in a recent interview with Harvard Business School. “These guys don’t really know what they’re doing in any deep way. It’s a giant financial experiment, and we’re at the mercy of their experiment that maybe is right now in the process of going wrong, so God help us.”

Klarman goes on to say that he is a “fan of gold” for safe-haven purposes. “I think gold’s valuable in a crisis. If the world turns to hell, the war expands and gets worse, God forbid a nuclear weapon is used, I think people are going to say: ‘How do I know what anything’s worth anymore? I’m going to make sure I have some gold because I don’t want to not have money at a time of desperation.’ It may never come to that, but I think it’s prudent to have a little bit of your portfolio in gold.”

ramirez cartoon of the economic train wreckCartoon courtesy of MichaelPRamirez.com

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Gold pushes higher ahead of Powell Congressional appearance later today
Deutsche Bank sees the metal as “already pricing in peak hawkishness” on the rate outlook

(USAGOLD – 6/22/2022) – Gold pushed higher this morning as investors continued to balance inflation concerns with Fed policies to contain it. The markets will be looking for new clues on that score when Fed Chairman Powell makes a Congressional appearance later today. The yellow metal is up $8 at $1843. Silver is down 12¢ at $21.61. Taking into account, this morning’s commodities sell-off, the firmer dollar, and declining Treasury yields, gold’s upside looks to be a product of safe-haven buying.

Deutsche Bank sees the price consolidating at the $1850 level and moving toward the $2100 mark over the next 12 months on safe-haven appeal. “Rising real rates are a headwind for gold,” it says in a report cited at FXStreet. “However, we feel the market is already pricing in peak hawkishness in terms of the rates outlook.… Gold’s hedging characteristics may also come to the fore. With market volatility likely to continue to be driven by concerns regarding inflation, recession and/or geopolitics, we feel gold should be well supported by investor demand.”

bar chart showing gold coin sales since 1986 with projection for 2022
Chart courtesy of World Gold Council

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Gold regains its footing in early trading on weaker dollar, stagflation worries
Current price stability, says Saxo Bank’s Hansen, sets the stage for a bullish future

(USAGOLD –6/21/2022) – The gold market regained its footing in early trading in response to a weaker dollar, stagflation worries, and an uneasy calm in the bond market. It is up $1 at $1842. Silver is up 23¢ at $21.90. Saxo Bank’s Ole Hansen makes the important point that gold might be breaking its long-term inverse correlation with real yields as markets adjust to the prospect of a 1970s-style stagflation – a period bullish for both gold and silver but disastrous for stocks. (Please see chart below.)

“We believe that hedges in gold against the rising risk of stagflation, traders responding to the highest level of inflation in 40 years and turmoil in stocks and cryptos are some of the reasons why gold has not fallen at the pace dictated by rising real yields,” he writes in a report released by the firm yesterday. “With that in mind, we are watching what investors do (not what they are saying) through the ETF (Exchange Traded Fund) flows. During the past week, total holdings in bullion-backed ETFs have seen a small decline of less than 0.25% – again, a development highlighting investor maintaining exposure to offset the tumultuous conditions seen across other markets and sectors. Our long held bullish view on gold and silver has been strengthened by developments this past week. We still see the potential for gold hitting a fresh record high during the second half, as growth slows and inflation continues to remain elevated.”

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

 

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Gold trades quietly to start the week
Hathaway sees possible Fed pivot by end of summer, gold at new highs around $2200

(USAGOLD – 6/20/2022) – Gold is trading quietly to start the week as investors continue to weigh Fed tightening against the rising inflation rate. It is level at $1842. Silver is down 3¢ at $21.72. Gainers in last week’s market turbulence, which featured bitcoin losing over 20% of its value, were few and far between. By Friday’s close, gold was down about 1.5% on the week, while silver managed to eke out a 0.6% gain. Warnings about a stock market capitulation dominate the flow of financial opinion as Wall Street boards up the windows in advance of what JP Morgan’s Jamie Dimon called an approaching “economic hurricane.” Since that early June warning, stocks are down 9% and bonds are down 4%.

Sprott analyst John Hathaway says we have gotten to a place where “the Fed doesn’t have a dial. It’s an either on or off switch. They’re either switching off the economy and crashing financial assets and the economy, or their crying uncle and caving in, which will likely open the door to more inflation. I think either outcome is positive for gold.… Year to date, it’s up a little bit while the S&P is down 12% or 13%. It’s shown that it can be uncorrelated and help defend capital during difficult times in the markets. If the Fed cries uncle and pivots, my guess is before the end of the summer, we’re off to the races and I think we’ll see new highs in the gold price, which would be around $2,200.”

Stocks, bonds (TLT) and gold performances
(%, year to date)
overlay chart showing the performance of stocks bonds and gold year to date 6-20-22
Chart courtesy of TradingView.com • • • Click to enlarge

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Gold tracks marginally lower as the Bank of Japan leaves aggressive easing in place
Goldman Sachs sticks with its twelve-month $2500 gold price target

(USAGOLD – 6/17/2022) – Gold tracked marginally lower in early trading as the Bank of Japan left aggressive easing in place, driving the yen lower against the dollar. While the rest of the world tightens, or at the very least, feigns to tighten, Japan decides to keep things loose – a cryptic end to what’s been a bruising week for central banks and financial markets. The yellow metal is down $9 at $1851. Silver is down 7¢ at $21.96. Financial writer Ben Carlson posted a Tweet* about current Fed policy that cuts fiendishly to the chase: “The Fed needs to raise rates as quickly as possible to tame inflation by sending us into a recession where they can then cut rates to save us from the recession.” As our cartoon this morning suggests, Wall Street has not reacted favorably to the process.

In an analysis reviewed recently at Bloomberg, Goldman Sachs updates its bullish gold forecast from earlier in the year. It says gold demand has been hurt by a “wealth shock” in emerging countries, most notably China, that now “appears to have peaked.” Fed hawkishness, it says, will “add to fears of recession risks and boost gold investment demand.” Most notably, it is sticking with its twelve-month forecast of $2500 per ounce while revising its three-month target to $2100 (from $2300) and its six-month target to $2300 (from $2500). “In the absence of a large liquidity shock,” it advises, “we view current gold price weakness as a good entry point.”

* With thanks to Saxo Bank’s Ole Hansen

cartoon showing Wall Street getting very bearish about rising interest ratesCartoon courtesy of MichaelPRamirez.com

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Gold pushes south as part of a generally confused post-Fed market reaction
Bond market selloff accelerates on Day Two of quantitative tightening

(USAGOLD – 6/16/2022) – Gold pushed south this morning as part of a generally confused post-Fed market reaction. It is down $14 at $1821.50. Silver is down 25¢ at $21.47. The confusion, in our view, results from deepening uncertainty with respect to future Fed policy. It is difficult to put aside that just 45-days ago, Mr. Powell publicly declared that a 75 basis point interest rate increase was not being “actively considered” by policymakers. In short, hardened positions – hawkish or dovish – can soften overnight. What is policy today might not be policy tomorrow, and if you listened closely to what was said in yesterday’s press conference, that is precisely the message the Fed wishes to convey.

“In his remarks to reporters on Wednesday,” writes Bloomberg columnist Jonathan Levin this morning, “Powell appeared to acknowledge how powerless he felt. ‘We can’t really have much of an effect, but we have to be mindful of the potential effects on inflation expectations,’ Powell said. ‘So it’s a very difficult situation to be in.’ It’s tricky indeed, and Powell’s commitment to mindfulness won’t help one bit.” And it is not tricky just for the Fed. It is problematic for financial markets as well.

Today is Day Two of the Fed’s quantitative tightening program, and the bond market is suffering another major selloff. Yields are now approaching 3.5% on the ten-year Treasury, and forecasters say we will see 4% soon. Stocks are down sharply. Even the dollar is trading to the downside. As for gold, we will venture an observation we have made in the past. The initial reaction to important news is not necessarily the real reaction. We like to keep this daily report short, so we will cut it off here and let the markets speak for themselves.

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Gold sharply reverses course overnight
European Central Bank calls emergency meeting to address sovereign debt problem

(USAGOLD – 6/15/2022) – Gold sharply reversed course in overnight trading to make up roughly half the losses over the past two days as markets prepped to receive the Fed policy decision later today. It is up $26 at $1836.50. Silver is up 51¢ at $21.62. The Fed, though, is not the only central bank causing ructions in financial markets this morning. The ECB called an emergency meeting overnight to address instability in Europe’s sovereign bond market, centered around countries on its southern flank, and that is probably the primary reason for gold’s turnaround.

Last week, Bloomberg reported that central banks are worried about a global financial crisis, “anticipated changes in the international monetary system” along with “rising economic risks” in reserve currency countries. As a result, one-quarter of the central banks surveyed recently by the World Gold Council said they intended to add gold to their reserves over the next year. The sovereign debt problems in Europe and burgeoning global stagflation are likely to add some urgency to that groundswell, and further encourage demand among private investors and institutions as well.

bar chart showing central bank gold acquisition intentions over past four years
Chart courtesy of the World Gold Council • • • Click to enlarge

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No DMR this morning. Below we repost our late report on yesterday’s sharp decline. We will update later if anything of interest develops.

AFTERNOON UPDATE

(USAGOLD – 6/13/2022) – If you’ve dropped by to get a read on what happened to gold today, we provide a two-chart explanation. Please note in the first chart the converging yields on the US Treasury two-year note and the ten-year bond. Note also the lines crossing earlier this morning – an inversion, though temporary, that sent a chill through financial markets, including gold and silver. Such inversions have signaled recessions in the past. Coincident with that, note in the second chart the US dollar index’s unusually sharp gains over the past five trading sessions. As many of you already know, there is presently a heavily traded strong inverse correlation between gold and the US dollar index. The unusually strong move in the index induced an unusually strong move in the gold market.

Both trends have a common denominator – the Fed’s determination to push rates higher even with a recession looming on the horizon. Bloomberg posted a report earlier that Wall Street had begun to entertain the notion of a 1% rate increase at this week’s meeting as a way for the Fed to show it means business on inflation. The claim added fuel to the fire in all the markets. JP Morgan’s Kolanovic is going the other way saying the Fed will surprise on the dovish side. Wednesday tells the tale………..

Gold was down $52 on the day at $1822. Silver was down 81¢ at $21.16.

There are a couple of additional possibilities ……

– One, the sharp declines reflect thin summer trading.

– Two, traders might be selling gold positions to cover margin calls generated by the sharp declines in the crypto, stock, and bond markets.

Converging yields
(Two-year US Treasury note, Ten-year Treasury bond, one day)

overlay line chart showing the converging yields on ten year and two year Treasury paper

US Dollar Index
(Five days)
line chart showing US dollar index strong rise past five trading sessions
Charts courtesy of TradingEconomics.com

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