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.
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.”