Gold tracks sideways in quiet trading
Hathaway says loss of faith in the Fed could be ‘the number one game-changer’ for gold
(USAGOLD – 10/21/2021) – Gold tracked sideways in quiet early U.S. trading as investors weighed the potential impact of the Evergrande meltdown in China, growing indications of global stagflation, and the future size and scope of the Fed’s tapering program. It is down $1.50 at $1782. Silver is down 19¢ at $24.19. This nugget of wisdom from Sprott’s John Hathaway on the tapering controversy caught our attention yesterday:
“Notwithstanding the wide array of bullish considerations (all of which deserve paragraphs of exposition that have been written elsewhere and are omitted here for the sake of brevity), the number one game-changer for gold could be a loss of faith in the U.S. Federal Reserve Board. Unshakeable confidence in the Fed’s stewardship of the financial system and the economy has been the anchor for the bull market in financial assets. That trust is at great risk, in our opinion, when (and if) tapering begins.” (For details, please see It’s Show Time for the Fed).
Chart of the Day
Chart note: Analysts point to ETF inventory flows as an indicator of price direction because that is where institutional interest manifests itself. At the moment, institutions are essentially out of the gold market – neither buyers nor sellers, as shown in the chart. Note, too, the close correlation between price advances and declines and ETF inflows and outflows. Behavior among funds and institutions, we will add, is mercurial. The present indifference could turn to strong interest in a heartbeat given the proper impetus.
Gold pushes steadily higher on China concerns, global surge in inflation
‘You’d better be hedged. Equities are not attractive on an outright basis.’
(USAGOLD – 10/20/2021) – Gold pushed steadily higher in overnight and early US trading on concern about China’s property sector meltdown, double-digit wholesale inflation in Germany, and a general sense that the global economy might be headed into a period of stagflation. It is up $17 at $1788. Silver is up 48¢ at $24.23. Back in late July, Bridgewater Associates’ Co-CIO Greg Jensen, who has gone on record on numerous occasions advocating gold ownership, made a nuanced observation about how policymakers themselves might become victimized by a rapidly rising inflation rate. We came across those comments while reading John Hussman’s (Hussman Funds) latest market commentary yesterday, and thought them worth passing along.
“Easier and easier money, bigger and bigger deficits – that’s the destiny, until – and this is the big risk.” he said. “A deflationary slowdown is easy for policymakers. They’ll print more money and spend more money. What’s hard is when they’re constrained, and that constraint is obviously inflation and currency, and that’s where the gig will be up. That’s actually what, in our view, everybody has to start hedging in their portfolios – it’s not the next disinflationary or deflationary downturn. It’s essentially inflation and currency problems becoming constraints on the government and this world where we’ve been living in where policymakers can get whatever they want from the stock market and interest rates to one where they can’t. You’d better be hedged. Equities are not attractive on an outright basis.” [Emphasis added.]
Chart[s] of the Day
US producer prices
United States Inflation Rate
(As a %, through September 2021)
Year ahead inflation expectations
(Percent change monthly 2013 to September 2021)
Charts courtesy of TradingEconomics.com
Chart note: In September, U.S. consumer prices registered a 13-year high at 5.4%. Producer prices set a record for the sixth straight month jumping 8.6% year on year. We should keep in mind that wholesale price inflation is not just an American problem. China, for example, reported producer prices rising 10.7% year on year last week, and Germany reported a 14.2% increase in wholesale inflation earlier today. Inflation expectations are an important data set because it, not the CPI inflation rate, is what is formally used to calculate the real rate of return.
Gold turns higher on inflation expectations, China property sector woes
Silver surges 3.9% higher in early trading
(USAGOLD – 10/19/2021) – Gold turned higher in overnight trading on rising inflation expectations and growing concerns about China’s property sector defaults. It is now up $20 in early U.S. trading at $1786.50. Silver us up 91¢ (+3.9%) at $24.19. “Low interest rates have created a tremendous leveraged bubble,” notes Equity Management Academy in a report recently posted at Seeking Alpha, “which we won’t know the extent of until it bursts. We are just seeing how over-leveraged China Evergrande was, and there are bound to be countless other firms that are equally over-leveraged. With money so cheap, it is extremely tempting to borrow money to invest, which leads to over-leveraging. … Gold and silver are real monetary assets and with them trading at fairly low levels, it is an excellent time to build a position in precious metals. As governments print more and more paper currency, the currency is devalued and it leads to inflation – which will make hard assets, such as gold and silver, worth far more than they are presently priced.”
Chart of the Day
Coal, natural gas, crude oil
(One year, % gain)
Chart courtesy of TradingEconomics.com • • • Click to enlarge
Chart note: Concern is elevated that we might be in the middle of another energy crunch – a problem reflected in the price of coal, natural gas and oil, as shown in the chart. “Gas prices in Europe,” says Irina Slav in an article posted at the OilPrice.com website, “are breaking record after record. The U.K. is facing supply shortages reminiscent of the late 1970s winter of discontent. Chinese factories are shutting down because of power shortages, and the outlook is grim. In fact, it may be the first crisis of many.”
Gold drifts marginally lower to start the week
How can gold be stuck in a range when physical demand is so strong?
(USAGOLD – 10/13/2021) – Gold drifted marginally lower to start the week despite global bond market weakness, oil pushing above the $85 per barrel mark, and inflation beginning to look more threatening than advertised. It is down $3.50 at $1765.50. Silver is down 5¢ at $23.34. Investors often ask how the price of gold can be stuck in a range when the demand for physical coins and bullion is so strong, as it has been over the past two years. We recently came across a succinct answer to that question from The Gold Observer’s Jan Nieuwenhuijs and thought it worth passing along.
“Demand for gold coins must be seen as a retail sentiment indicator,” he says. “In the gold space, it is often assumed that whenever demand for gold coins rises and the premiums these coins attract escalate, the price of gold should sky-rocket accordingly. This is a false assumption, because gold coin demand accounts for (far) less than 8% of total demand, and thus can’t possibly have a large impact on the gold price. At the heart of this misconception is a lack of knowledge between the gold retail and wholesale market. The price of gold is predominantly set in the wholesale market by institutional supply and demand. The same misconception applies to silver coins…”
Chart of the Day
Chart courtesy of Merk Investments • • • Click to enlarge
Chart note: Though gold does not necessarily rise with price inflation, it is heavily influenced by growth in the money supply no matter where that stimulus ends up. Charts showing growth of the U.S. money supply and gold are fairly common. This chart is the first we have seen combining the price of gold with growth in the global money supply.
Gold encounters resistance at $1800, reverses to the downside
‘Investors can accumulate at prices that will appear very good in a few years’ – Adrian Day
(USAGOLD – 10/15/2021) – Gold pushed lower in early trading after encountering resistance at the $1800 level yesterday. It is down $17.50 at $1780. Silver is down 29¢ at $23.30. Despite this morning’s downside, both metals are on track to close out the week in positive territory. Gold is up 1.25% on the week. Silver is up 2.75%. Long-time market analyst, Adrian Day, points out that gold has a history of tracking to the downside on the threat of Federal Reserve tightening, then rallying when the policy is actually implemented.
“Gold acts this way because all too often when the Fed does actually start to act, it is too little too late,” he writes in a detailed analysis posted at Gold-Eagle. “The Fed started raising rates in August 2005, and again in December 2015, after months of discussion. In both cases, gold bottomed the same month rates started being hiked. … The recent action has been frustratingly modest and volatile. However, the longer gold meanders in its current trading range, the faster and stronger the eventual move will be. In the meantime, gold investors can accumulate at prices that will appear very good in a few years’ time. They should not wait too long.”
Chart of the Day
Chart courtesy of Merk Investments • • • Click to enlarge
Chart note: This overlay chart shows intriguing similarities between gold’s bull market advance in the early 2000s and the current price trend begun in 2016.
Gold pushes over $1800 market as consensus shifts to persistent inflation
‘No longer any sensible way to dismiss this inflation episode as merely transitory.’
(USAGOLD – 10/14/2021) – Gold pushed past the $1800 mark overnight in a continuation of yesterday’s reaction to the September inflation report, growing concern about the debt defaults in China, and the developing energy crunch. It is up $6.50 at $1801. Silver is up 25¢ at $23.43. Yesterday’s inflation report raised the prospect of a more persistent version of the problem in the United States. “The U.S. consumer price inflation data for September is with us,” writes Bloomberg’s John Authers in his regular column this morning. “With it, I will say tentatively, the debate over whether the current dose of inflation is merely transitory is almost at an end. There’s room for much argument about what should be done about rising prices, but there’s no longer any sensible way to dismiss this inflation episode as merely transitory.” If the past two days are an indication, gold has begun to react directly to that shifting consensus. Some believe that a runaway, 1970s-style runaway stagflation is a strong possibility – a consequence of the massive money creation over the past nearly two years (some of which has leaked into the money supply).
Chart of the Day
Sources: St. Louis Federal Reserve, Board of Governors of the Federal Reserve System (U.S.)
Chart note: While hyperinflation in the U.S. economy is unlikely, It is a reality in Venezuela. One of the characteristics of hyperinflation is how quickly it can impose itself on an economy. The chart above shows the rapid depreciation in the value of Venezuela’s bolivar over the past nearly two years. At the end of 2019, it took, as you can see, 45,760 bolivars to buy a dollar. The exchange rate is now 4,133,144 bolivars per dollar. Yesterday, the price of gold in Venezuela was 383,207,885,304,659.50 bolivars per troy ounce, according to Goldrate24 – an indication of its utility as a long-term store of value under even the most extreme circumstances.
Gold spikes lower, then higher in reconsideration of inflation impact
‘Safe-haven flows are starting to come gold’s way.’
(USAGOLD – 10-13-2021) – Gold pushed as much as $15 higher in overnight trading on the same concerns overhanging markets for the past couple of weeks – the developing credit crisis in China, an energy crunch that appears to be gaining momentum, and the overarching prospect of global stagflation. Upon release of this morning’s CPI report, which came in at a 5.4% annualized inflation rate, it promptly gave up those gains in what looked to be, as things turned out, a knee-jerk trading program reaction. After a short period of reconsideration, the market then reversed course, ending up $31 on the day at $1793. Silver jumped 46¢ at $23.11.
“Inflation expectations mixed with global growth concerns have made many investors nervous that the business and the consumer will be much weaker in the second half of 2022,” OANDA’s Edward Moya told Reuters. “Safe-haven flows are starting to come gold’s way.” We would add that this is the first time in a long while we can recall an inflation report invoking a robust and direct response in the gold market. The advance sends a clear signal that investors are beginning to question the transitory inflation thesis. The Wall Street Journal ran a headline at its website this afternoon captuing the moment: Persistent inflation ripples through U.S. economy. Last, in case you missed it, gold is once again knocking at $1800’s door.
Chart courtesy of TradingView.com • • • Click to enlarge
No DMR today.
We will post an update later in the day HERE if anything of interest develops.
Below is yesterday’s report.
Gold firms in overnight trading on China, energy and stagflation concerns
Gold’s divergence on real rate chart in 2021 due to ‘rosy expectations’
(USAGOLD – 10/12/2021) – Gold firmed in overnight trading on a combination of concerns – the developing credit crisis in China, an energy crunch that appears to be gaining momentum, and the overarching prospect of global stagflation. It is up $8 at $1763.50. Silver is up 3¢ at $22.68. In an e-mail investment update this morning, the World Gold Council warned that stagflation is a real risk that appears to be in the cards.
Chart of the Day courtesy of Merk Investments • • • Click to enlarge
“Stagflation, if severe,” it says, “can be damaging to both the economy and financial markets. But we don’t need a repeat of the 1970s for assets to be affected. Our analysis shows that even mild stagflationary conditions can have similar asset impacts to those in more severe stagflations. Stagflation has historically hit equities hard. Fixed-income returns have been variable, while both commodities and gold have fared well. Gold’s historically strong performance can be attributed to higher inflation and market volatility supporting capital preservation motives, and lower real interest rates supporting both opportunity cost and growth risk motives.”
As you can see in our Chart of the Day, gold has followed the course of real rates (inverted), with a notable divergence occurring in 2021. In that same report, the World Gold Council says the anomaly “has to do with rosy expectations about inflation, growth, and equities.” That could all change, we will add, if inflation proves to be other than transitory and safe-haven interest begins to migrate once again in gold’s direction.
Gold remains stubbornly confined within its recent range
Misery Index rises sharply reflecting possible stagflationary economy
(USAGOLD – 10/11/2021) – Gold remained stubbornly confined within its recent range this morning as the dollar strengthened and Treasury yields pushed higher. It is level at $1758.50. Silver is down 5¢ at $22.69. Wall Street analysts are split on where the Fed goes from here. Some believe it will be forced to taper, as signaled, in the face of increased price inflation. Others believe if it does, it could destabilize a bond market perilously dependent on central bank largesse. As a result, if it does withdraw support it is likely to be tempered. Still others point to a data mix possibly reflecting the early stages of a 1970s-style stagflation – a volatile mix of high inflation and unemployment globally that might be beyond the Fed’s reach. (Please see our Chart of the Day) While the financial market sorts out the possibilities, gold seems content to sit in a range, waiting for something more definitive to develop.
Bloomberg posted an encouraging review of gold’s prospects late last week under the headline Gold’s Lackluster Year May Get a Boost as Stagflation Risks Grow. The article quotes MKS Switzerland’s Nicki Shiels as saying, “there’s certainly some decent gold upside if the narrative changes to one of persistent inflation and slower growth. Stagflation would force a macro rotation out of typical reflation assets or commodities like oil and copper, and into the precious sector.” Commtrendz Risk Management’s Gnanasekar Thiagarajan says that for inflation it’s not a question of if but when. Under those circumstances, he reasons, “investing in gold and silver is the most ideal thing because gold is an inflationary hedge and silver tends to appreciate much more when gold starts rallying.”
Chart of the Day
Inflation + Unemployment
Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics
Chart note: The misery index was first developed in the 1980s to reflect the effects of stagflation – economic stagnation and inflation. It is simply the unemployment rate added to the inflation rate. As you can see, it has risen sharply since the onslaught of the pandemic and remains high now.
Gold bolts sharply higher on payrolls miss
‘Silver loves inflation even more than gold.’
(USAGOLD – 10/8/2021) – Gold quietly traded to the upside in overnight markets, then bolted sharply higher on this morning’s critical nonfarm payrolls miss. It is up $20 at $1777. Silver is up 50¢ at $23.18. The sluggish jobs market could pressure the Fed to forestall any radical departure from current stimulus policies and add to market concerns over inflation. Charlie Morris, the London-based publisher of the Atlas Pulse Gold Report, says that inflation is proving to be “not so transitory… and this is where silver comes in.”
“Many say silver is gold on crack,” he explains, “but that’s not the whole story. Gold responds to lower interest rates like the long bond, whereas silver lags gold in that scenario. Silver only responds when inflation expectations are rising, and that’s when it really outperforms gold.” He goes on to say that “silver loves inflation even more than gold … If the spike move in inflation expectations continues, I would reasonably expect silver to outperform gold from here. But remember, silver is riskier and more volatile but does the same job as gold over the long-term.”
Chart of the Day
Chart courtesy of GoldChartsRUs.com • • • Click to enlarge
Chart note: An interesting revelation in this chart, if you look closely, is how well silver performed during times of economic uncertainty. Gold has a reputation for being a safe haven and store of value, but silver also has a history of delivering when the chips are down. Too, as this chart shows, it has performed well in all the major currencies, albeit with considerably more volatility.
Gold continues to drift sideways despite a range of concerns
Bloomberg’s McGlone thinks that might be about to change
(USAGOLD – 10/7/2021) – Gold continued to drift sideways midway in the trading range in place since early August. It is up $1 at $1765. Silver is up 14¢ at $22.83. The precious metals’ rangebound pricing has been something of a mystery to analysts given the concerns about surging inflation, a 1970s-style energy crisis in Europe, a credit crisis brewing in China, and a wobbly bond market (and that’s just the short list). Bloomberg’s head commodity strategist, Mike McGlone, thinks all of that might be about to change.
Chart of the Day courtesy of TradingEconomics.com
“West Texas Intermediate,” he says in an update posted at Bloomberg Intelligence, “is the featured top major commodity performer in 2021 on our scorecard and gold the worst (Please see our Chart of the Day), which makes sense in a bounceback from the 2020 swoon, but we see risks of a reversal into year end. Gold has the advantage of low elasticity of supply vs. crude oil, which is facing price pressure from both sides of the demand-vs.-supply balance. There’s a reason WTI is about half the price of its peak from 13 years ago: Humans are incrementally using less crude and replacing it with technology. It’s only been about a year since gold’s last peak, and we believe it should be a relatively short matter of time to revisit. Gold has outperformed most major commodities in the past 20 years.”
Gold drifts lower in sluggish, taper-driven trading
Poland central bank governor speaks out on gold’s value as ‘the ultimate strategic hedge’
(USAGOLD – 10/6/2021) – Gold drifted lower in the same sluggish, taper-driven trading environment gripping the rest of the financial markets and the global economy. Stagflation is in the air, and the markets are attempting to sort out how to deal with it. Gold is down $2.50 this morning at $1759. Silver is down 24¢ at $22.48. On occasion, we have remarked that the same attributes that make gold a reliable store of value for central banks also apply to private investors. Adam Glapinski, the head of Poland’s central bank, elaborates on those virtues in a the World Gold Council report issued this week titled A Central Banker’s Guide to Gold as a Reserve Asset.
“Gold is devoid of credit risk,” he writes. “It is not easily ‘debased’ by monetary or fiscal mismanagement of any country, and while its overall supply is scarce, its physical features ensure durability and virtual indestructibility. True, gold offers little by way of income and its price tends to fluctuate quite a bit, but it is perhaps the simplest, easiest and most efficient expression of a strategy that involves what Warren Buffet astutely called ‘going long on fear.’ What this means is that gold is not an asset bought because of its industrial uses or income-generation appeal – rather it is an ultimate strategic hedge whose value usually grows in circumstances of increased risk of financial or political crises or turbulences, i.e. precisely at times when the central bank might need its reserves most. And, yes, physical gold may seem ‘barbaric’ by today’s standards of digital currencies, blockchain technology and cashless payments, but – to put it bluntly – an ounce of gold will still be an ounce of gold should lights rather unfortunately go out.”
Chart of the Day
Sources: St. Louis Federal Reserve, Federal Reserve Board of Governors, ICE Benchmark Administration
Click to enlarge
Chart note: With inflationary concerns moving to the forefront, a handful of analysts have made strained attempts to show that gold is not truly an inflation hedge – an endeavor that generally requires the manipulation of timelines and statistics to make the point. The chart above is drawn to log scale and, as a result, provides a more accurate representation of monetary growth (inflation) and its relationship to the gold price. As you can see, monetary growth spiked in 2021 – an event to which gold has not yet reacted.
Gold continues to seesaw at the lower end of its established range
Legion of strong-handed silver investors’ bullish omen for the future’
(USAGOLD – 10/5/2021) Gold continued to seesaw at the lower end of its established range this morning. It is down $10.50 at $1761. Silver is down 17¢ at $22.62. We spend most of our time in these reports parsing gold’s prospects, but what about silver? It, too, has been subject to rangebound trading since early 2021 though with a bit more volatility. Zeal LLC’s Adam Hamilton sees the stubbornly high levels in silver ETF stockpiles as a sign that last year’s “legions of new investors” have proven themselves to be strong-handed investors – a development he sees as a “bullish omen for silver.” (Please see our Chart of the Day)
“Silver is poised for another investment-demand-fueled upleg once this latest bout of Fed-tightening-fear-driven heavy gold-futures selling burns itself out,” he writes in a piece posted at Seeking Alpha, “Interestingly speculators’ silver-futures positioning also supports big silver gains coming. As of late September, their longs and shorts were running 8% and 100% up into their past-year ranges! That’s near silver’s most-bullish-possible setup of 0% longs and 100% shorts. That implies selling exhaustion, that speculators have both sold all the silver-futures longs they are likely to as well as done all their probable short selling. That leaves room for nothing but buying, which propels silver sharply higher due to the big leverage inherent in silver futures. Investment demand should soar as investors see silver powering decisively higher again. That has real potential to fuel a big coming silver upleg.”
Chart of the Day
Chart courtesy of GoldChartsRUs.com
Chart note: As you can see, despite silver’s rangebound to lower pricing, ETF stockpiles have held their own over the past 12 months – a bullish omen, according to precious metals market analyst Adam Hamilton. Please see today’s Daily Market Report (above) for details.
Gold pushes marginally lower in early trading
Short term market timers bearishness on gold is a ‘positive omen’
(USAGOLD – 10/4/2021) – Gold pushed marginally lower in early trading despite growing concern about stagflation, stiffening energy prices and a weaker dollar. It is down $7 at $1755. Silver is down 14¢ at $22.49. MarketWatch’s Mark Hulbert says that gold market timers have rarely been more bearish than they were last week, according to his Gold Newsletter Sentiment Index – a development he sees as a “positive omen.”
“To appreciate just how extremely bearish the gold timers have become,” he writes in his regular MarketWatch column, “consider the average recommended gold market exposure level among several dozen short-term gold timers my firm tracks on a daily basis. … This average dropped to minus 45.2% this week, which means that the typical gold timer was recommending that clients allocate nearly half their gold trading portfolios to going short.” According to Hulbert, the radical drop in sentiment usually signals contrarians that the time is ripe to enter the market. “[T]he odds,” he concludes, “favor a gold rally currently.”
Chart of the Day
(Annual average 1971-present)
Chart note: This chart amply illustrates a point Interest Rate Observer’s James Grant made recently that “over the course of a reasonable investment, long-term horizon, [gold] will spare you the punishment that our central banks so willfully are meting out.” In 2020, it posted its all-time average high at $1770.37. It has been our experience – and we have been in the gold business for a very long time – that the investor who sees gold as a long-term store of value and a form of savings is often the one who reaps the rewards, even when the quiet times are taken into account.
Gold trades quietly in follow-up to yesterday’s strong advance
Rebound seems imminent for both fundamental and technical reasons, says analyst
(USAGOLD – 10/1/2021) – Gold is trading quietly this morning in the follow-up to yesterday’s strong advance. It is down $3 at $1756. Silver is up 21¢ at $22.46. September was not particularly kind to either precious metal against a backdrop of indecision at the Fed, a downside reversal in the bond market, and a stronger dollar despite growing skepticism about keeping the lid on inflation. After all was said and done, gold finished the month down 3.1%. Silver was down 7.7%. Stocks did not escape a woeful September – falling 4.5%.
In the latest issue of Gold Newsletter, analyst Brien Lundin offered a short overview of the technical factors at play in the gold and silver markets and came away with a cautiously positive outlook. “For its part,” he writes, “silver never delivered the buy signal that gold did, but seemed about to. It remains in that state, still with a sell signal, but in the area where we would expect a rebound. That’s because, when monetary issues are driving the metals and supportive of higher prices, gold and silver have tended to hit these bottoms in the 14-week stochastic and quickly reverse higher. So a rebound seems not only inevitable for fundamental reasons, but perhaps imminent on the technical evidence. In fact, as we’re putting this issue to bed, gold has bounced as much as $40. Most of that gain came after Powell, in testimony before the House, noted that the U.S. economy is ‘far away from full employment.’ Let’s grant that he’s also angling for re-appointment, but also recognize that gold is at extremely oversold levels and therefore primed for some sort of rally.”
Chart of the Day
Chart courtesy of Merk Investments
Chart note: With inflation on the rise, the percentage of debt that carries a negative yield is likely to grow unless, of course, central banks move aggressively to push yields above the inflation rate. The number of analysts envisioning such a policy change, though, are few and far between at this juncture.