As you know, the performance of gold responds to the interaction of demand and supply, which, in turn, is influenced by the interplay of four key drivers:
Gold and silver prices fell 3.5% and 11.5%, respectively, last year – and started the first official trading day of 2022 down another 2ish percent.
Nevertheless, they’re still a solid – perhaps the best – place to have your savings, especially for the long run.
Why? Because the fundamentals of gold and silver remain strong as we embark on another year of work, play and investing for the future.
Tightening by the mightily bloated Federal Reserve is off and running.
The Fed’s Open Market Committee kept its word the other day, with the first of what’s expected to be 6 or 7 quarter-of-a-percentage point interest rate increases by the end of the year to put inflation in its place.
Today, Fed Governor Christopher Waller warned that the Fed may need to enact one or more 50 basis point hikes in 2021.
Though he voted this week for just 25 basis point because of economic uncertainty over Russia’s invasion of Ukraine, Waller said he thinks the Fed may need to be more aggressive soon.
“I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year.”
“The way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future.”
In addition to the rate hikes, Waller said he thinks the Fed needs to start reducing its holdings of Treasuries and mortgage-backed securities sooner than later.
Russia's ruble has rebounded in recent weeks, as the Kremlin patched together an aggressive defense of its fiat currency.
The ruble was valued (vs. the U.S. dollar) at 80.41 on February 23, the day before Putin’s invasion. It skyrocketed to 131.50 on March 7. It plunged to 90.72 on the Ides of March (the 15th). And it opened today at 94.75.
Matt Phillips reports that Moscow’s latest attempt to shore up support came in the form of a direct demand from His Rogueness (Putin) that the EU pay for natural gas with rubles instead of dollars or euros.
It's a not-so-veiled effort by Russia to create demand for its struggling currency—with the ruble jumping 8% on the news.
Widespread sanctions imposed after Russia's invasion of Ukraine in late February have hammered the ruble, wiping out 90% of its value against the dollar at times.
Moscow took measures—like doubling interest rates, halting currency trading, and demanding that Russian companies exchange their foreign earnings for rubles—that slowed the bungie jump and prevented a crash.
But Putin's latest scheme has already been called a breach of contract by Germany, the eurozone’s largest buyer of Russian natural gas.
If the breach prompts a full rupture with Europe, which buys 40% of its gas from Russia, the ruble will likely take another tumble.
Such a break, however, would also make Europe's energy crisis a lot worse. To wit, European natural gas prices jumped 30% after Putin made his latest demand.
The CPI index, it vividly shows how the value of the dollar has steadily dwindled over the last ten years.
As Bloomberg News' Joe Wiesenthal tells us, straightening this line — or at least slowing its downward spiral — is the Fed’s real goal.
Although the U.S. Dollar Index has been inching higher and higher — over the past year, it's risen almost 11%, from 91.05 to its closing today at 100.8 — it's actually been weakening at the fastest pace since the 1980s.
Last fall, aerial drone photos showed dozens of huge, multi-colored container ships backed up outside the Port of LA.
Even then, it looked like inflation was going to be with us for longer than the Fed and many others were predicting at the time.
It’s simply transitory – temporary – they insisted. Turns out, they were wrong, by a long shot.
Inflation, as measured by the Fed’s preferred, if somewhat mythical, metric – the Core Personal Consumption Expenditures Index (i.e., excluding food and energy) – has steadily risen since the pandemic was declared in March 2020.
The core PCE consistently hovered at or below the Fed’s 2% target from late 2008 until the 1st quarter of 2021.
In February 2020, just before the pandemic was declared in the U.S., the core PCE was roughly 1.8%.
Since then, it’s risen every quarter, from its low of 1.0% in Q2 2020 to 5.2% at the end of March 2022 – more than double the Fed’s target.
Of course, the broader core Consumer Price Index (CPI-U) rose an even higher 6.5% in March (8.4% when you include food and energy prices).
The duo’s historic cross-country expedition began in 1804, when President Thomas Jefferson directed Meriwether Lewis to explore lands west of the Mississippi included in the Louisiana Purchase.
Lewis chose William Clark as his co-leader for the mission. Their treacherous adventure lasted over two years.
Along the way, they faced hostile weather, unforgiving terrain, perilous waters, bodily injury, persistent hunger, disease and both friendly and unwelcoming Native Americans.
Nevertheless, their roughly 8,000-mile trek was deemed a big success and provided new geographic, ecological and cultural information about previously unmapped areas of North America.
It was all about slow and steady.
Fast Forward 400 Years.......
After hitting a 20-year high in late September, the dollar has been shrinking and fast.
The U.S. dollar index tracks the greenbill against a basket of six other major currencies – the pound, euro, yen, Canadian dollar, Swiss franc and Swedish krona.
It's down almost 10% (at 104.58 today) from its early fall peak of 114.53. That's the most the dollar has fallen in a 10-week time frame in over a decade.
Not coincidentally, gold hit its 2022 low of $1,639 on the same day the dollar hit its high. And since November 3rd – when gold matched its September low – the dollar has been steadily falling.
At the same time, gold has responded by hitting its highest point – just shy of $1,815 at New York lunch time today – since early July.