Gold declines moderately in early trading
FXStreet analyst sees dollar selling, gold pushing higher if Brainard gets Fed nod
(USAGOLD – 11/10/2021) – Gold declined moderately this morning in advance of the consumer inflation report due shortly. It is down $6 at $1827.50. Silver is down 9¢ at $24.28. For the past few months, the reappointment of Fed Chair Powell has been a foregone conclusion. Over the past several days, though, political crystal ball gazers have elevated Fed governor Lael Brainard’s status to that of legitimate contender. Yesterday FXStreet’s Justin McQueen speculated on what a Brainard chairmanship might mean for the gold market.
“[G]iven that Brainard is considered to be more dovish than the already dovish Chair Powell,” he wrote, “should Brainard be confirmed as the next Fed Chair, the initial reaction is likely to be one of US dollar selling, alongside US treasuries and gold pushing higher, particularly given that bookmakers remain heavily in favour of Powell being renominated.” As for the price of gold, McQueen says that it is “back at familiar resistance at $1833, which marks the 61.8% Fibonacci retracement of the $1450-2071 range. The level also coincides with the trendline stemming from all-time high, increasing the significance of the area, which has rejected gold topside on several occasions from July. Therefore, a close above would be a significant development for bulls and open the doors to $1860-75.”
Chart note: In 2020, silver recorded its best percentage gain in a decade – 46.3% – and posted its third-largest gain over the 20 year period. It has posted gains – sometimes significant – in twelve of the last twenty years. So far in 2021, silver is down about 11.5%.
Gold steady in quiet early trading ahead of upcoming inflation reports
Lundin sees much higher prices ahead as the ‘Fed’s ‘impotence is revealed.’
(USAGOLD – 11/9/2021) – Gold held steady in quiet early trading ahead of today’s much-anticipated wholesale price report. Tomorrow we get the second half of the monthly inflation picture when the government releases its October consumer prices report. The yellow metal is level at $1826. Silver is down 9¢ at $24.43. Some analysts view last week’s Fed’s tapering announcement as a future deterrent to higher precious metals prices. Others, like Gold Newsletter’s Brien Lundin, see it as an inducement for bigger and better things to come.
“As I write, the 10-year yield has fallen from 1.582% to 1.465%,” he wrote in an advisory released this past Friday. “I’ll let the pundits ponder the reasons why yields are falling as the Fed’s support for the market is waning, but many also view gold’s typical rebound on tightening news as being illogical. I think it’s all a part of how the markets no longer trade on fundamentals post 2008, and are purely driven, at least in the short term, by the shifting fancies of the algos and hot-money traders in futures. Those same factors are what have kept the metals corralled as monetary and fiscal policies have fueled rampant inflation, and perhaps those traders will now get behind the metals and help them make up for lost time. Regardless, the end result – manipulation or not – will be much higher prices for gold and silver as the Fed’s impotence is revealed. So we’d better be ready.”
Chart of the Day
Gold price and the yield on 10-year inflation-indexed security
Chart note: As you can see in this chart, declining real rates have had a direct effect on the price of gold, particularly noticeable in the period after the 2007-2008 credit collapse and the pandemic-induced economic crisis that began in early 2020. The inflation-indexed real rate of return on the 10-Year TIPS is fluctuating around the 1% level. With inflation on the rise, the negative real rate of return will accelerate unless the Fed and/or bond market pricing push yields higher at an equivalent rate.
Gold hold’s steady on shifting inflation sentiment
Analyst says taper announcement could be ‘buy on the news event’ for monetary metals
(USAGOLD – 11/8/2021) – Gold held steady in quiet early trading as financial markets weighed shifting sentiment on the inflation issue and a generalized retreat from higher rates among central banks, including the Federal Reseve. This week the US government will bring the price picture into clearer focus with the release of its wholesale price report on Tuesday and consumer prices on Wednesday. Gold is level at $1819.50. Silver is up 10¢ at $24.32. Market strategist Paul Wong sees the Fed’s tapering announcement last week as a possible “buy on the news event” – a process that may have taken its first steps on Friday when gold gained $26 to push solidly over the $1800 mark – finishing at $1819.50.
“[T]he Fed is in a quandary,” he says in a lengthy review of gold’s prospects posted at the Sprott website. ‘”It will either have to tighten conditions to head off inflation and risk slowing growth even further, or the Fed will remain accommodative to continue growth and risk broadening and pushing inflation. Either option will elevate market risk conditions. Gold is likely to react positively to either scenario, with the higher inflation one being more immediate. Either way, precious metals positioning has been brought down to low enough levels that any upward pressure would see prices advance meaningfully. We believe that precious metals are set up for a squeeze higher and are simply awaiting a catalyst. Remember, catalysts speed up reactions, and there appear to be several sources of potential activation energy for gold.”
Chart of the Day
Fed balance sheet growth and the price of gold
(2005-2021, log scale)
Chart note: This chart tracks the relationship between Federal Reserve balance sheet growth (quantitative easing) and the price of gold. The first episodes of quantitative easing (QE1-QE3) began in late 2008 with the onslaught of the credit crisis and ended in 2014. The second (QE4) began in 2020 with the beginnings of the covid pandemic. This past Wednesday, the Fed announced it would start reducing its bond purchases later this year at $15 billion per month. Tapering is a slowing, not an end, to Fed bond purchases.
Gold advances as ground shifts on rates and a stronger payrolls number
Why have gold and silver been slow to catch the inflation bug?
(USAGOLD – 11/5/2021) – Gold advanced this morning as the ground shifted on future rate increases, and the non-farm payrolls number came in stronger than expected. It is up $4 at $1797. Silver is up 5¢ at $23.90. Both the Bank of England and Poland’s central bank surprised financial markets yesterday by retreating from promises to raise rates in 2022 to a more cautious approach. Their reluctance to raise rates falls in line with Fed Chairman Powell’s commitment on Wednesday to be “patient” on rate increases despite the rising inflation rate. In that context, the strong NFP number could be seen as symptomatic of a rising inflation rate that the Fed is willing to tolerate.
While commodity prices are in a steady uptrend – the CRB Index is up almost 40% year to date – gold and silver have remained stubbornly in a range. In a recent interview posted at the ZeroHedge website, Equity Management Associates’ Lawrence Lepard was asked why precious metals seem to be the only commodities that haven’t caught the inflation bug as yet. “The metals were early to the party,” said the highly regarded fund manager, “and are now taking a breather while all the other commodities catch up. Gold was up over 50% in a two year window. It is down 15% in the past year. It is crazy and partly due to price suppression by the central banks, but they cannot hold it down forever and the next run will take it to new all time highs quickly in my opinion.”
Chart of the Day
Chart note: Since 1913, the US dollar has lost almost 96% of its purchasing power. Since 1971 and the introduction of the fiat money system, it has lost 85% of its purchasing power. Since 2008, during a period of relative price stability, it still lost over 22% of its purchasing power.
Gold in recovery mode post-Fed
Kranzler sees precious metals “monster move” potential on market fundamentals
(USAGOLD – 11/4/2021) – Gold went into recovery mode right after the Fed’s tapering announcement – a mini-trend that extended into overnight trading and this morning’s U.S. open. It is up $22 at $1793 and up $33 from yesterday’s bottom at the $1760 level. Silver, behaving similarly, is up 34¢ at $23.93 on the day, and up 85¢ from yesterday’s bottom at $23. Financial markets reaction to the Fed’s well-telegraphed taper policy has been notably benign thus far, but it’s early in the game. We will know more once the Fed actually begins applying the brake in mid-November.
“The fundamentals supporting a monster move in gold and silver have never been stronger,” writes long-time gold market analyst Dave Kranzler at the Gold-Eagle website. “This includes extraordinarily negative real interest rates, Government debt outstanding that seems to be increasing at an increasing rate, the continued devaluation of fiat currencies from Central Bank money printing and escalating geopolitical risks. These are just the primary fundamental factors. Gold and silver are at their cheapest levels relative to other commodities since 2009. Institutional investment allocation to the precious metals sector is at a historical low at well less than 1%. In 1979 institutions had 5% in the sector. Imagine the effect on prices if big funds were to allocate just 2% to the precious metals sector.”
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 breaks to the downside in pre-Fed results trading
Inflation is now the elephant in the Fed’s meeting room
(USAGOLD – 11/3/2021) – Gold broke to the downside in early trading ahead of today’s Fed policy statement and press conference. It is down $12 at $1777. Silver is down 13¢ at $23.47. Inflation is now undeniably the elephant in the Fed’s meeting room. Financial markets, including precious metals, will be watching carefully today to see how the central bank reacts to its presence. “An important thing to remember,” says ETF Trends’ Evan Harper in a report titled Will November Be Gold’s Month, “is that gold doesn’t typically just heat up the moment inflation is evident; it usually happens on the heels of inflation’s impact being felt. Inflation weakens the dollar and creates political turmoil, which in turn often drives the price of gold up. This makes right now a compelling moment to purchase gold, as the signs of inflation are everywhere, but there is still enough going well in the economy that demand for gold hasn’t exploded. … Gold could reap huge benefits when investors come to grips with the uncertainty that is permeating the global economy.” [Emphasis added.]
Chart of the Day
Net yield on inflation-indexed 10-year U.S. Treasury securities
Sources: St. Louis Federal Reserve [FRED], Board of Governors of the Federal Reserve System
Chart note: This chart shows the negative real rate of return on 10-year Treasuries taking inflation into account. “Failure to respond quickly and fully to persistent inflation,” says Cambridge economist Mohamed El-Erian, “would constitute the biggest monetary policy mistake in more than 40 years.” At the same time, tapering or raising rates would likely send the bond market into a major sell-off with the prospect of the turmoil spilling over to the stock market.
Gold edges lower in advance of Fed meeting
‘People need to realize that this Fed is very tentative.’ – Mike Larson, Weiss Ratings
(USAGOLD – 11/2/2021) – Gold edged lower in advance of today’s Fed meeting and tomorrow’s closing statement and press conference. It is down $1.50 at $1794. Silver is down 16¢ at $23.95. As reported yesterday, analysts are up in the air on how the Fed will approach mixed signals in the economy and the instability already roiling global credit markets – symptoms, as we pointed out in the November issue of our newsletter, characteristic of a stagflationary economy.
“There’s going to be a realization in early 2022 that the Fed is not going to be able to be aggressive,” says Weiss Ratings’ Mike Larson in a report posted at the Finbold website, “People need to realize that this Fed is very tentative. It’s a Fed that has a lot of political pressure to favor the employment side of its mandate over inflation. … I don’t think it’s going to be a runaway where you’re talking about $4,000 gold, but you know, $2,200, $2,300 or $2,400, somewhere in that range, I think in sort of a corresponding moving silver, I think it is likely on the table. And again, it’s going to come from the release of that Fed fear, pressure valve, whatever that’s been keeping people from, getting involved.”
Chart of the Day
Chart note: “Some economists fear that the United States will become stuck in a ‘debt trap,'” writes James McBride and Anshu Siriparu in a Council on Foreign Relations article, “with high debt tamping down growth, which itself leads to more debt. Others, including those who subscribe to the so-called modern monetary theory, say the country can afford to print more money.” The authors project steady growth of the federal debt to 200% of GDP by 2040. As you can see on the chart, it is just under 100% now – a level many economists already see as dangerous.
Gold edges higher as investors exercise caution ahead of Fed
Real estate mogul Sam Zell elaborates on the reasons for his newfound interest in gold
(USAGOLD – 11/1/2021) – Gold edged higher this morning as investors exercised caution ahead of this week’s Fed meeting. It is up $3 at $1788. Silver is down 3¢ at $23.92. Analysts are up in the air on how the Fed is likely to approach mixed signals on the economy, as well as a growing sense that whatever it does, it could roil already unstable credit markets. (See “Hedge funds seen facing heavy losses” below.) The overriding concern has shifted to stagflation, a situation particularly nettlesome for central banks in that any policy response meant to address a slowdown exacerbates the inflation problem – and vice versa. The Wall Street Journal said this morning it expects the Fed “to seek a middle ground” – “monitoring inflation risks” but not being worried enough “to pivot toward tighter money.”
You might recall real estate mogul Sam Zell announcing earlier this year that he had begun acquiring gold for the first time in 80 years. In a recent interview posted at the VCU News, interviewer Andy Florence asked about what prompted his interest in the metal. He began by recalling his family’s escape from Nazi Germany and the role “liquid assets” played in attaining its freedom. “The day my father died,” he said, “he had a safe deposit box full of diamonds and gold – not so much – but the point being, a refugee’s ready to go forward. So from my perspective, the assault on fiat currencies is somewhat disturbing. I don’t think that I’m ever going to get enough gold exposure to have any meaningful – nor would I want it – percentage of my net worth. But at the same time, when I see the kind of printing that’s going on, the idea of starting to put together a pool of liquid resources, mostly because I don’t know what happens. The world changes and there’s time for certainty.”
Chart of the Day
Gold and silver price
(% gain, October 2021)
Chart courtesy of TradingView.com • • • Click to enlarge
Chart note: For the month of October 2021, gold gained 2.57%, and silver gained 6.43%.
Gold tracks lower in subdued, pre-Fed meeting trading
World Gold presents overall solid demand picture for gold in third quarter
(USAGOLD – 10/29/2021) – Gold tracked lower in subdued trading ahead of next week’s Fed meeting as the dollar and bond yields firmed. It is down $11 at $1789.50 and still struggling to breach the $1800 mark. Silver is down 16¢ at $23.97 and struggling to remain above the $24 level. As we close out October, gold is up 3.1% on the month while silver is up 6.3%.
The World Gold Council is out this morning with its Gold Demand Trends report for the third quarter. Among a wealth of statistics, it shows significant overall global growth in bar and coin demand featuring record year-to-date growth in the United States (+31%) and Germany. ETF demand lagged the rest of the market, but, the Council points out, the weak showing needs to be considered in “the context of recent history.” ETFs added more than 1200 tonnes to their holdings in 2019 and 2020 while reporting only a minor reduction in aggregate stockpiles in 2021. In short, the operative mindset in the global gold market is “buy and hold.”
Chart of the Day courtesy of the World Gold Council • • • Click to enlarge
“Bar and coin demand,” says WGC, “should continue to be supported by the macro environment of high inflation prints and economic concerns. One surprising area of strength is the US, where the year-to-date total is the highest in our dataset. This was all the more notable given the weakness in both gold ETFs and COMEX futures. … Although the pace of investment slowed from the first half of the year, investment remains very elevated when compared with historical norms: the five-year quarterly average is 13 tonnes. Year-to-date investment reached a record of 91 tonnes. Q4 has apparently started well, potentially putting the full-year record from 2009 (114 tonnes) within reach.”
Gold makes another attempt to breach the $1800 level
Financial markets generally biding their time ahead of next week’s Fed meeting
(USAGOLD – 10/28-2021) – Gold is making another attempt to breach the $1800 level this morning in generally quiet, featureless trading. It is up $6.50 at $1805. Silver is up 4¢ at $24.18. Financial markets, in general, appear to be biding their time ahead of the upcoming FOMC meeting next Tuesday and Wednesday. Equity Management Academy believes that gold put in a seasonal bottom in September and that investors should add “aggressively” to their core holdings on pullbacks.
“The gold market has been completely ignored during the past 12 months,” it says in a recent Seeking Alpha article. “We have gone into a second corrective wave that is about to revert and begin the third leg of a long-term bull market that started in March 2020. The fact that gold is ignored may be one of the most bullish signs from a historic perspective. When gold unleashes its reversion to the mean, it will be a strong move and most people will miss it. The collective sentiment on gold is the most bearish in the face of the most bullish fundamentals ever. The economics of price alone are a screaming buy signal when you compare it to other financial assets, digital or non-digital.”
Chart of the Day
US Dollar/Argentina Peso
Chart courtesy of TradingEconomics.com
Chart note: It took 10 Argentina pesos to buy a dollar in 2015. It now takes almost 100.
Gold drifts marginally higher in quiet trading
Greenspan warns that ‘inflation is likely to be a threat on a more sustained basis’
(USAGOLD – 10/27/2021) – Gold drifted marginally higher this morning in quiet trading near the $1800 mark. It is up $2 at $1797. Silver is down 4¢ at $24.19. We note that both gold and silver have quietly posted gains over the past thirty days of 3.4% and 11.25% respectively, indicating that the transitory inflation narrative might be beginning to lose its luster. That narrative was dented last week when both Treasury Secretary Yellen and Fed Chairman Powell unexpectedly warned that high inflation could extend into late 2022. Too, former Fed chairman Alan Greenspan warned yesterday in a client note posted at the Advisors Capital Management website that “inflation is likely to be a threat on a more sustained basis.”
“[W]hen ‘investors catch on,” says Sprott’s Craig Hemke of the changing inflation psychology, “the move upward in COMEX gold is very likely to be gradual and then sudden. [Canadian mining executive] Rob McEwen suggests a price as high as $3000/ounce, but that’s not a likely first target. Instead, look for COMEX gold to eventually overshoot its most recent all-time high by 10% or so—just as it did in August 2020 when it peaked at $2080 versus the September 2011 high of $1920. … So, continue to prepare for what’s to come. You’ve been granted some time here in 2021 to add physical metal to your stack at some surprisingly low prices. But this period of consolidation and faulty expectations is ending. Patient investors will soon be rewarded…gradually, and then all at once.”
Chart of the Day
Chart note: The Reserve Bank of India purchased a record 29 tonnes of gold in June and almost 150 tonnes over the past year. The Central Bank of Brazil purchased 62.3 tonnes between May and July. Poland’s central bank recently announced it would add 100 tonnes to its reserves. The World Gold Council reports central banks as a group buying 333 metric tonnes of gold in the first half of 2021. “Central banks,” it says, “are likely to continue buying gold on a net basis in 2021 at a similar or higher rate than in 2020, driven by a continued focus on diversification and risk management.”
Gold retreats but holds above all-important $1800 level
Twitter founder Dorsey warns ‘hyperinflation is going to change everything’
(USAGOLD – 10/26/2021) – Gold retreated in early trading this morning but continued to hold ground gained above the all-important $1800 level. It is down $4 at $1805. Silver is down 18¢ at $24.47. Inflation has become a top concern at the corner of Wall Street and Main over the past several weeks, and the shift in sentiment has helped pushed the precious metals higher. John Greenwood and Steven Hanke offered a numbers-driven account of inflation’s prospects in a recent Wall Street Journal article.
“Out of the total $10.6 trillion in new money,” they wrote, “real GDP growth will drain roughly $1.4 trillion. Another $1 trillion will flow down the money demand drain. Since the amount of money flowing into the bathtub far exceeds the two outflows, the excess money in the tub—around $8.2 trillion—will hit the inflation overflow drain. The huge monetary expansion—$5.5 trillion already in the bathtub—is starting to reach the overflow. Persistent, not transitory, inflation will be with us for the next two to three years.”
Twitter founder Jack Dorsey was even more emphatic about inflation’s prospects. “Hyperinflation is going to change everything,” CNBC recently quoted him as saying. “It’s happening. … It will happen in the US soon, and so the world.”
Chart of the Day
United States Consumer Inflation Rate
(Bureau of Labor Statistics, September 2021)
Chart and commentary (below) courtesy of TradingEconomics.com
Chart note: It is difficult to ignore the swift gains in inflation posted over the past year. The rate has more than tripled since the summer of 2020.
Gold pushes higher on China woes, the energy crunch, and inflation concerns
Powell, Yellen backtrack on transitory inflation narrative
(USAGOLD – 10/25/2021) – Gold pushed higher this morning on a familiar grouping of concerns – China’s property sector meltdown, the energy crunch (natural gas surged over 6% overnight), and a growing sense that inflation could be more persistent than previously believed. Both Fed Chairman Powell and Treasury Secretary Yellen have back-tracked on the transitory inflation narrative in recent days – a change in perception that will not be lost on market traders. It is up $9 at $1803.50. Silver is up 9¢ at $24.49. Bleakley Advisory Group’s Peter Boockvar sees the current situation in the precious market as a matter of black and white. “The trade with gold and silver is pretty straightforward here,” he tweeted recently, “If you believe [the] Fed will get ahead of the curve or at least in line with it with regards to inflation then sell. If you think Fed will crab walk their tightening, then this selloff is a gift. I believe in the latter.”
Chart of the Day
Chart note: This chart tracks the relationship between Federal Reserve balance sheet growth (quantitative easing) and the price of gold. The first episodes of quantitative easing (QE1-QE3) began in late 2008 with the onslaught of the credit crisis and ended in 2014. The second (QE4) began in 2020 with the beginnings of the covid pandemic. This past Wednesday, the Fed announced it would start reducing its bond purchases later this year, though no firm date or level of reduction was given. Tapering is a slowing, not an end, to Fed bond purchases.
Gold gains ground as concern lingers on China, stagflation and tapering
Gold up 1.5% on the week, silver up 4.7%
(USAGOLD – 10/22/2021) – Gold gained ground in early trading on lingering concerns about China property sector bonds, emerging global stagflation, and the future size and scope of the Fed’s tapering program. It is up $8.50 at $1793. Silver is up 16¢ at $24.41. All in all, it’s been a good week for precious metals. Gold is up 1.5% and silver 4.7%. Money Week’s John Stepek believes that the renewed interest in gold has to do with investors waking up to the notion that the Fed is “going to end up behind the curve” on inflation and the real rate of return.
“[T]he reason that gold tends to do well in inflationary times,” he says in a recent Money Week article, “is not because of inflation as such, it’s because when inflation goes up, ‘real’ interest rates (that is, interest rates adjusted for inflation) go down. Gold historically does well when real interest rates are falling. If inflation goes up faster than interest rates, that spells falling real interest rates (even if nominal rates are rising). That, in turn, is good for gold.” Asset allocations for most of us, he concludes, “might need to shift significantly to cope with the new era we might be moving into.”
Gold Real Rate of Return
Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics, ICE Benchmark Administration
Chart note: Gold’s real rate of return is the difference between the gold bars representing the appreciation or depreciation in the gold and adjacent black bars representing the year-over-year percent change in the consumer price index. As you can see, gold has logged a real return in thirteen of the last twenty years. That return has been significant in some years and speaks to gold’s value as a long-term savings instrument.
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.