Daily Gold Market Report

Gold marginally higher as Fed Week begins
MarketWatch’s Hulbert believes debt ceiling wrangle could push gold higher, stocks lower

(USAGOLD – 9/20/2021) – Gold is marginally higher in early trading as Fed Week begins – up $5 at $1761. Silver is down 3¢ at $22.43. With inflation registering as more virulent than forecasted, the economy still mired in uncertainty, and a battle looming in Congress over the debt ceiling, it appears the Fed governors will have considerably more to consider this week than is typically the case. Too, global stock markets took a tumble overnight in what looks like a contagion effect resulting from a possible debt default by Evergrande, the giant Chinese property developer. Some Asian markets were closed, but significant shockwaves registered in Hong Kong, several European markets, and the United States (where the Dow is down almost 650 as this report is posted).

We have not devoted much time and space to the looming Congressional battle over the debt ceiling simply because Washington usually comes to terms on the issue before any serious damage is done. Some, though, believe that it will be different this time around due to seemingly irreconcilable differences between Democrats and Republicans. MarketWatch’s Mark Hulbert thinks gold could rally in the face of the upcoming wrangle. “Don’t be surprised,” he adds in a column published recently at the MarketWatch website, “if stocks and Treasury yields fall.” He goes on to say that “the deadline over the debt ceiling and a possible government shutdown have not made it onto most investors’ radar screens.” Once it does, he says, “stocks, gold and bonds are likely to respond accordingly.”

Chart of the Day

overlay chart showing the real rate of return on dollar-based Treasuries versus the price of gold 2011 to present

Chart courtesy of GoldChartsRUs.com

Chart note: This chart shows the negative real rate of return on the five-year Treasury note applying Shadow Government Statistics’ rendition of the inflation rate – the same methodology utilized by the Bureau of Labor Statistics in the 1980s. Keeping in mind that the current real rate of return based on current BLS inflation data is on the order of -0.67%, it is radically less than the -12.7% shown on the chart above. The price of gold has responded accordingly, gaining momentum since late 2017 when the real rate began to turn radically to the downside mostly the result of declining interest rates. Now a rising inflation rate has begun to play a role in the negative real rate of return. Gold, as you can see, has yet to register a commensurate advance.


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