Gold holds gains after inflation report
Real Clear Markets’ Tamny says gold is a constant and a ‘signal of inflation’

(USAGOLD – 5/27/2022) – Gold held on to overnight gains as the April PCE Index indicated inflation at 6.3%, slightly below March’s 6.6% –  a not too hot-not too cool number likely to play to mixed reviews in markets today. It is up $5 at 1858. Silver is up 16¢ at $22.25. Though markets now see inflation as a clear and present danger, John Tamny, the editor of Real Clear Markets, says they still do not fully understand its relationship to gold. Gold doesn’t track; it anticipates.

“Inflation is a decline in the value of a currency, period,” he says in an analysis posted at Forbes, “Rising prices are a consequence of inflation, or better yet, can be a consequence. But they’re not inflation itself. To presume that rising prices cause inflation is the equivalent of asserting that wet sidewalks cause rain. Causation is reversed.…To be clear, gold doesn’t rise as a result of inflation; rather gold’s rise is the signal of inflation. When the dollar weakens, gold reflects this weakness. Gold’s rise IS the inflation.” (Editor’s note: The World Gold Council recently argued that money supply is a better indicator of future gold price trends than the Consumer Price Index.)

Gold and the money supply (M1)

line chart showing gold and M1 since 1971
Chart courtesy of TradingEconomics.com

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Gold slides below the $1850 mark in quiet trading
Bridgewater’s Dalio says, ‘you have to have a certain amount of gold in your portfolio’

(USAGOLD – 5/26/2022) – Gold slid below the $1850 mark in quiet trading as financial markets processed yesterday’s Fed minutes and braced for tomorrow’s PCE Index report. It is down $8 at $1848. Silver is down 8¢ at $21.99. Ray Dalio, who heads up Bridgewater Associates with $160 billion under management, recommends a well-diversified portfolio as the best approach to the current economic upheaval. “You have to have balance,” he told CNBC in an interview at the Davos conference, “and I think you have to have a certain amount of gold in your portfolio.” As CNBC points out, that recommendation echoes his call three years ago that “the precious metal will be a top investment in the years to come.”

“[T]hose that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” he said in an advisory posted at Linked-In in July 2019. “Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better-balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.” At the time of that Linked-In post, gold was trading in the $1400 range.

bar chart showing the long term performance of gold against a range of competitive assets
Chart courtesy of the World Gold Council • • • Click to enlarge

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Gold takes a breather after six straight days of gains
In Gold We Trust: ‘For gold, recessions are typically a positive environment.’

(USAGOLD – 5/25/2022) – Gold looks to be taking a breather this morning after six straight days of gains. It is down $12 at $1857. Silver is down 36¢ at $21.83. The dollar is firm ahead of the Fed minutes release later today contributing to gold’s downside. Also factoring into today’s pricing is options expiration on the June gold and silver COMEX contracts. Bloomberg reports recession overtaking inflation as the number one concern among market participants. If that be the case, the safe-haven trade might get a boost in the days ahead.

“For gold,” says Ronald Stoferle and Mark Valek in their just-released “In Gold We Trust” report, “recessions are typically a positive environment.…If we look at performance over the entire recession cycle, it is notable that in each of the four recessionary periods gold saw significant price gains on average in both US dollar and euro terms.…Moreover, it is striking that, on average, the higher the price losses of the S&P 500, the stronger gold performed. Once again, this worked well during the most recent recession in 2020.”

Gold and recessions
(1971 to present, green bars = recessions)
line chart showing gold and recessions 1971 to present

Chart courtesy of TradingView.com

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Gold advances incrementally on Lagarde pivot
Commerzbank says selling pressure on gold in the futures market seems to have abated

(USAGOLD – 5/24/2022) – Gold advanced incrementally again this morning as the dollar weakened further against its rivals and global stock markets continued to respond to inflation’s ill effects. “The US dollar might just have peaked,” writes Bloomberg’s John Authers in his regular column overnight, “and if it has then a blog post by Christine Lagarde has a lot to do with it.” With the euro playing such an outsized role in the US dollar index, the ECB president’s seeming pivot to a more hawkish stance makes a significant difference. Gold is up $6 at $1862. Silver is up 15¢ at $22.03. As a matter of perspective, gold is up $60 over the past ten days; silver is up almost $1.50.

Germany’s Commerzbank reports that the selling pressure on gold seems to have waned and that it is “apparently finding favor among ETF investors again.” According to the CFTC’s statistics,” it says in an update released overnight, “speculative financial investors had withdrawn further in the week to 17 May, reducing their net long positions to their lowest level since last September. In our view, however, this should now have adjusted the market, meaning that the selling pressure generated by this group of investors should have abated significantly.” (For more, please see Hickey sees managed money report as ‘extremely bullish’ for gold.)

Euro/dollar
(Five day)
line chart showing euro gains against dollar past five days

Chart courtesy of TradingView.com

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 Gold pushes higher overnight on stiff dollar sell-off
Analyst Noland is on guard for a “consequential shift in dollar sentiment”

(USAGOLD – 5/23/2022) – Gold pushed higher in overnight trading, mostly in response to a stiff sell-off in the dollar. It is up $15 at $1864. Silver is up 38¢ at $22.21. The dollar tracked lower on the perception that Europe and the United Kingdom will be forced to act aggressively on rates to keep a lid on prices – the opposite of the market read a week ago. Too, currency traders are attempting to get a fix on how the switch to rouble payments for European oil and gas imports will impact the dollar. (Germany and Italy approved payments in roubles last week, according to a recent Reuters report.) Before the switch, about 40% of oil and gas imports from Russia were settled in the greenback.

“I have held that the Fed’s ability to sustain US securities market price inflation has for decades provided key unappreciated support to our currency,” writes analyst Doug Noland in the latest issue of Credit Bubble Bulletin, “offsetting unending massive current account deficits and general monetary inflation (currency debasement). From this perspective, I’m increasingly on guard for a consequential shift in dollar sentiment that would catch a vulnerable market by surprise. And a weakening dollar would support precious metals and commodities prices, in the process solidifying the secular transition of Hard Asset outperformance relative to financial assets.”

Gold and the US Dollar Index
(Six months)
overlay line chart showing gold and the U.S. dollar index six months
Chart courtesy of TradingEconomics.com

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Gold, silver setting up to finish the week on a positive note
Firming prices have yet to rattle recently established shorts, says Saxo Bank’s Hansen

(USAGOLD –5/20/2022) – Gold stayed on the positive side of the ledger this morning with nascent stagflation, wobbly stocks, and a hawkish Fed playing on market psychology. It is up $3 at $1846. Silver is up 2¢ at $22.03. Gold is setting up to close the week with a roughly 1.7% gain; silver, 3.7%. Saxo Bank’s Ole Hansen says gold has found some support from the recent stock market rout but it has yet to “rattle some of the recent established tactical short positions.” For that to happen, he says,”the metal needs a runaway upside day or a period of consolidation back above the 200-day moving average, currently at $1839/oz.” (See chart below.)

“What has changed during the past 48 hours,” he adds in an update posted overnight, “has been dismal earnings news from large US retailers raising the risk of a deeper than expected economic slump. Most recently Target Corp which yesterday plunged the most since 1987’s Black Monday crash. In his comments, the CEO sited persistent cost pressures and bloating inventories amid a change in consumer spending as reasons.These developments helped deepen the global stock market rout, and today the weakness has continued, thereby supporting short-covering and fresh haven buying of US bonds while the dollar has softened. All developments that has supported the mentioned bid in gold.”

Gold price and the 200-day moving average
(One year)
Gold and 200 day moving average to present
Chart courtesy of TradingView.com • • • Click to enlarge

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Gold jumps as stagflation, cratering stocks, and a hawkish Fed prey on sentiment
Wisdom Tree thinks gold is about to return from its ‘alternate universe’

(USAGOLD – 5/19/2022) – Gold jumped sharply higher in early trading as the prospect of stagflation, cratering stock markets, and a hawkish Fed preyed on investor sentiment. It is up $23 at 1842. Silver is up 34¢ at $21.85. Bloomberg estimates yesterday’s stock market damage at $1.5 trillion while warning of more downside to come. Though the price of gold has tracked lower since early March, led by speculative selling in the futures market, physical demand itself has held up well. ETF stockpiles show only a minor decline, indicating that funds and institutions are holding on (See chart below). Global mints report steady sales of bullion coins primarily to private investors. Wisdom Tree, the Ireland-based investment house, says its internal forecasting model indicates gold should be trading at the $2150 level when the soaring inflation rate is taken into account.

“It’s as if gold has been living in an alternate universe,” it says in a recently released report. Judging from its forecast, Wisdom Tree believes gold will soon be returning from that alternate universe. Its consensus forecast has gold at $2315 by the first quarter of 2023. Its bullish scenario, based on sticky near double-digit inflation and a sharp correction in the dollar index, puts it at $2680. Its bearish forecast, which would result from the Fed successfully taming inflation, puts it at $1790 by the first quarter of 2023. “We believe that gold has reached a turning point,” it concludes, “after being relatively subdued in the second half of 2021. The metal has been catalysed by rising geopolitical risks and it will become increasingly difficult for the metal to keep ignoring the elevated inflation environment we live in.”

bar chart showing demand for ETF gold February to presentChart courtesy of GoldChartsRUs

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Gold drifts sideways, balancing hawkish Fed with inflation-recession concerns
‘One of the world’s oldest forms of investment’ offers a solid, two-decade track record

(USAGOLD – 5/18/2022) – Gold drifted sideways this morning, attempting to strike a balance between the latest hawkish remarks from Fed Chairman Powell and lingering concern over the dual prospect of inflation and recession. It is level at $1817.50. Silver is up 2¢ at $21.71. Looking back at the longer-term record, Forbes’ Jo Groves sees “one of the world’s oldest forms of investment” as adding “stability and diversification to an investment portfolio – especially in times of economic turbulence.”

“During a period of high inflation,” says the former investment banker in an overview on gold investing, “such as the one currently being experienced by economies around the world, investors may revert to gold as a real physical asset that holds its value. The argument is that gold is a good hedge against inflation as, in theory, increased demand for gold in inflationary periods can result in a rise in gold prices. Over the last 20 years, annual inflation has averaged 3% in the UK, according to the Office for National Statistics. Over the same period, the price of gold has increased by an average of 10% per year (according to the World Gold Council). Adjusting for the inflation rate of 3%, the ‘real’ value of gold has therefore increased by an average of 7% per year.”

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

Chart note: Year to date, gold is up about 1% even after the recent decline is taken into account.

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Gold advances for second running after yesterday’s solid bounce off $1800 mark
Bank of England’s Bailey admits policymakers are ‘helpless’ in face of inflation

(USAGOLD – 5/17/2022) – Gold advanced for the second day running in what looks like some cautious bottom fishing and short-covering encouraged by yesterday’s solid bounce off the $1800 mark. It is up another $10 this morning at $1837. Silver is up 22¢ at $21.90. Andrew Baily, the Governor of the Bank of England, made the unsettling admission yesterday that central bank policymakers are “helpless” in the face of surging inflation. “It’s a very, very difficult place for us to be in,” he said in an appearance before Parliament reported in The Daily Telegraph.

Bailey’s discomfiture brings to mind a recent analysis from former Thatcher government economic advisor Tim Congdon who also sees inflation as a juggernaut with room to run. “Many observers expect the peak in annual US consumer inflation to come quite soon (say, with the publication of the May numbers in June) at a little less than 10%,” he wrote. “However…the peak in US inflation is still some months away – and may even be recorded in 2023.”

Congdon takes to task those who say the jump in consumer prices results from external forces like shortages, supply bottlenecks, etc. which he sees as “a symptom of inflation, not a cause.” Instead, he puts the blame on money creation and the inflation of asset prices (with long and variable lags) for consumer price inflation. “It is plainly daft,” he continues, “to attribute the remarkable increase in the price of houses – many of which were built a few decades ago – to energy prices, price movements in second-hand cars and lumber, the international shipping market and so on in 2020 and 2021.” In keeping with Congdon’s analysis, we recall a World Gold Council report some time back recommending the money supply as a more reliable indicator of gold’s future price potential than the inflation rate itself.

overlay line chart showing gold and M1 money supply drawn in log scale 1970 to present
Sources: The St. Louis Federal Reserve [FRED], ICE Benchmark Administration • • • Click to enlarge

 

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Gold down marginally under familiar dollar-related circumstances
Shedlock says “US dollar moves irrelevant to price of gold over any meaningful time frame”

(USAGOLD – 5/16/2022) – Gold is down marginally in early trading under familiar circumstances – a firm US dollar, or more precisely, a weakened yen, yuan, and euro. It is down $6 at $1808. Silver is up 7¢ at $21.24. Japan, China, and Europe are loosening monetary policy in the face of a global economic slowdown while the United States is tightening. Consensus has it that the dollar, as a result, is running with the wind, and gold against it. Market analyst Mish Shedlock, who has never been one to shy away from controversy, sees the consensus as guilty of short-term thinking and looking in the wrong place for clues as to gold’s future direction.

“Repeat after me,” he says in a recent blog post, “US dollar moves are irrelevant to the price of gold over any meaningful time frame. I drew a horizontal line with the US dollar index at 87.5 to get enough data points for comparison. If you prefer another level, be my guest and try it.” With the dollar index at 87.5, he shows, that gold has traded at $500, $800, $1200, and $1350. “People believe easily refuted nonsense,” he concludes “because the talking heads repeat it every time the dollar strengthens and gold drops.…Rather, gold is largely a function of faith in central banks, especially the central bank of the major reserve currency country.”

Ramirez cartoon showing a consumer applying for a bank loan to fill his gas tankCartoon courtesy of MichaelPRamirez.com

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Gold continues its slide as global economy stalls
Hemke says gold will regain safe-haven bid as stocks fall – $2100 by year-end

(USAGOLD – 5/13/2022) – Gold continued its slide this morning as investors weighed the effects of Fed policy, the lockdowns in China and a stalled global economy. It is down $7.50 at $1820. Silver is up 5¢ at $20.81. On the year thus far, silver is down 9.4%, falling in line with a sharp drop in industrial metals across the boards. Gold is down just under 1%. Those declines, though, are not nearly as steep as what has occurred in the stock and bond markets – down 17% and 18.5% respectively so far this year. TF Metals Report’s Craig Hemke sees gold as simply giving up unexpected, war-related gains and still on track for a strong showing in 2022.

“No one could have fully predicted the Russian war on Ukraine and the international reaction,” he writes in a report posted at Sprott Money earlier this week. “The events of February and March led to a price spike in COMEX gold that reached all the way to $2060, but now the price is fully $200 lower and back to where we figured it would be through the first third of the year. What happens next? COMEX gold will soon make another ‘higher low’.…From there, it will begin to benefit from a ‘safe haven bid’ as the S&P falls. It will also begin to anticipate the inevitable Powell Pivot II, and all of this will play out over the summer. And then, just as written in January, it will challenge that $2100 level again in the final third of the year.” 

(Editor’s note: The chart below shows the results of the first Powell Pivot in 2019.)

QE/QT/QE cycle 2016-2022
overlay line chart showing gold and the Fed balance sheet growth 2016 to present
Chart courtesy of Trading View.com/Annotations by USAGOLD/Click to enlarge

 

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Gold sells off despite signs of renewed safe-haven interest
Morris says gold is setting up for prolonged outperformance as equity bear market begins

(USAGOLD – 5/12/2022) – Gold sold off in early trading despite early signs, as evidenced by this morning’s sharp drop in bond yields, of renewed investor interest in safe-havens. It is down $9 at $1845. Silver is down 64¢ at $21.00. Later this morning, the Labor Department will release its producer price index, expected to come in at double-digit levels. UK-based market analyst Charlie Morris says the equity bear market has begun and that gold is “setting up for a prolonged period of outperformance.”

In the May issue of his newsletter, he says that the yellow metal “is doing what it does best, which is to protect investors during times of crisis. Many don’t get that and criticize gold for not paying a yield. Alternative assets are not supposed to be yield generating, for if they were, they wouldn’t be alternative. Paying a yield would make gold a financial asset. Besides, the only yield I would want would be paid in gold.” He concludes with what has become a recurring theme among analysts: “Above all, there will be increased demand for alternative assets as investors realize that the 60/40 equity/bond portfolio has come to the end of the road.”

Gold, DJIA, and NASDAQ
(%, year to date)
overlay line chart showing year to date performances of gold DJIA and NASDAQ in percent
Chart courtesy of TradingView.com • • • Click to enlarge

 

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Gold goes positive ahead of this morning’s inflation reading
Historically unusual times call for a fully diversified portfolio approach, says Alden

(USAGOLD – 5/11/2022) – Gold went positive in overnight trading ahead of this morning’s all-important U.S. inflation reading. It is up $14 at $1855. Silver posted a sharp turn higher – up 50¢ at $21.85. The consensus has consumer prices rising 8.1% in April – below March’s 8.5% but still at worrisome levels. Anything above the consensus could trigger more volatility in already tenuous financial markets. Market analyst Lynn Alden Schwartzer believes that the Fed is tightening into a decelerating economy, and that, she says, is when things tend to get messy.

“The past few years have been historically unusual,” she says in a detailed outlook posted at Seeking Alpha, “and I suspect the next few years will be historically unusual as well, with all sorts of unique exceptions and unintuitive outcomes. The easiest way to navigate an uncertain environment for the long run is through diversification and rebalancing. A combination of stocks, real estate, cash/bonds, commodities, and hard monies can navigate through multiple types of economic environments better than a 60/40 stock and bond portfolio, because each element of that more diversified portfolio benefits from either inflation, deflation, growth, or stagflation.” (Editor’s note: Yesterday’s DMR chart inclusion is worth a second look in this context.)

Gold, S&P 500, IShares 20+ Treasury Bond ETF (TLT)
(%, year to date)
overlay chart showing relative performances of gold stocks and bonds in percent year to date
Chart courtesy of TradingView.com • • • Click to enlarge

 

 

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Gold inches higher in quiet pre-consumer price trading
Year to date, it has outperformed stocks and bonds by a wide margin

(USAGOLD – 5/10/2022) – Gold inched higher in quiet early trading as markets took pause ahead of tomorrow’s consumer price report. It is up $7 at $1863.50. Silver is up 10¢ at $25.96. Though gold has been in a Fed-inspired retreat since early March when it hit $2050 per ounce, it is still up on the year, albeit marginally (about 3%). In a relative sense, it has been something of a saving grace for its owners thus far this year – holding its own while the stock and bond markets tumbled alarmingly. Some will find the comparative performances, as shown in the chart below, surprising.

“Gold remains at the mercy of a continued rise in US Treasury yields and the stronger dollar with inflation data this week from the U.S. and elsewhere potentially driving additional volatility across market,” writes Saxo Bank’s Ole Hansen in a market update posted yesterday. “Overall, however, compared with stocks and bonds, gold’s relative strength continues. As of last Friday, an investor based in dollars holding gold was +16% ahead relative to the S&P 500 and more than 26% versus TLT an ETF that tracks the performance of long-dated US government bonds. In Europe, an investor based in euros has seen an XAUEUR position outperform the pan-European Stoxx50 index by more than 25% and 20% versus an ETF tracking European government bonds.”

Gold, S&P 500, IShares 20+ Treasury Bond ETF
(%, year to date as of 5/5/2022)
overlay chart showing relative performances of gold stocks and bonds in percent year to date
Chart courtesy of TradingView.com • • • Click to enlarge

 

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Gold drops sharply in early trading as financial assets weaken across the boards
Wells Fargo’s LaForge confident ‘this whole unloved gold thing will turn around’

(USAGOLD – 5/9/2022) – Gold dropped sharply in early trading as financial assets and commodities weakened across the boards in response to Fed tightening measures, the lockdowns in China, and recession concerns. It is down $22 at $1864. Silver is down 53¢ at $21.90. The U.S. dollar rose above the wreckage to post a new 20-year high against other currencies. Despite its current difficulties, Wells Fargo market strategist John LaForge still believes gold will hit $2100 by year-end saying it is the “most confusing of all commodities” given all that’s going on around it.

“It doesn’t seem to want to react to anything outside the U.S. dollar and that’s been going on for a solid year and a half,” he says in a recent interview at Kitco News. “The bad news is bad news and the good news is bad news. It doesn’t seem to matter. Gold reached a point where people just don’t love it no matter what the fundamentals are.…Gold had been slowly outperforming most other commodities from 2005 all the way up to 2020. And it’s given all that relative strength back in two years. And it’s a head-scratcher because it shouldn’t do it that fast. The value is there. We’re in the middle of a supercycle. I think this whole unloved gold thing will turn around.…It could be one of those times where gold just does its own thing because it doesn’t really care about what’s going on.”

Gold and the U.S. Dollar Index
(%, one year)
overlay chart showing gold and the U.S. Dollar Index over theh past 12 months in percent
Chart courtesy of TradingView.com •  •  • Click to enlarge

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