Congress managed to avert a recurring crisis last Thursday, as it passed a short-term appropriations bill that will keep the lights on in the hallowed halls of Washington through December 3rd.
That leaves members with the rest of what Hayes Brown calls “the to-do list from hell” — at the top of which is what to do about the debt ceiling.
Don’t look now, but the economic recovery, rebound or whatever you want to call it has stalled.
It’s not exactly drowning in quicksand (at least not yet), but it’s definitely mired in pools of thickening sludge.
The U.S. reported disappointing job growth for the second straight month and for the third time in six months.
Just 194,000 nonfarm jobs were added to what has got to be characterized as an restless economy in September — a significantly slower pace than the 366,000 number a month earlier.
Economists had been expecting to reach at least 500,000 this time around.
Wednesday’s article listed a handful of reasons why the coming months could be opportunistic for gold. Add one more to that list…
Investors are beginning to worry about stagflation — a combination of lower growth and higher inflation — which hasn't been a thing since the early 1980s.
But too big to fail Goldman Sachs reported today that "stagflation" was the most common word in client conversations last week as equity market volatility remains elevated.
This week, their clients are focused on the risks posed to growth by supply chain challenges and rising energy costs.
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.
Gold could test new highs of $2,100 an ounce this year, according to David Lennox at Fat Prophets.
The U.S. dollar’s weakness and rising inflation are some factors that are likely to boost prices, according to the fund management company’s analyst.
Lennox says, “We…think across the course of 2022, we will see the gold price testing at the all-time record highs…”
There are a number of interesting and useful findings and projections in the World Gold Council’s “Gold Outlook 2022” released yesterday, particularly for precious metal investors.
Here are some highlights excerpted from the report:
After a trading day that saw the steepest drop in the S&P 500 since 2008, briefly dropping into correction territory with a big sell-off — and then saw it actually close UP 0.3% — the word that comes to mind, besides Whew, is Volatility.
A lot of it.
Since the beginning of the year, the CBOE VIX Volatility Index is up about 74% — having risen from a more modest 17.60 to 29.90 at the close today.
In fact, over the past two years, market volatility has more than doubled, and that is something precious metal investors should be paying attention to.
Without getting too technical, the VIX signals the level of fear or stress in the stock market — using the S&P 500 index as a proxy for the broad market — and thus is widely known as a “Fear Index.”
The higher the VIX, the greater the level of fear and uncertainty in the market; levels above 30 indicate a lot of investor fear and enormous uncertainty.
Five years ago, Meera Shawn wrote in Market Realist, “Notably, we often see that an increase in volatility can lead to a rise in gold.”
Other studies also confirm a positive correlation between the VIX and gold prices but are too detailed to summarize in this article (e.g., Gorbel & Jeribi 2021, Klein et al 2018, Bauer & Lucey 2010).
Global demand for gold skyrocketed to a two and a half year high in the 2021’s 4th quarter, resulting in a 10% full-year increase over 2020.
According to the World Gold Council’s latest report, total 2021 demand for gold (excluding Over the Counter) increased to 4,021 tons (502,625 oz.).
Thanks for that goes largely to 4th quarter demand jumping nearly 50%, and the result was the recovery of much of the pandemic-related losses of 2020.
The WGC noted that demand for gold in the consumer-driven jewelry and technology sectors recovered throughout the year — in line with economic growth and sentiment.
Global central bank buying also was far ahead of 2020’s pace. Investment demand was mixed because of high inflation competing with rising yields for investor attention.
The year ended similar to how it began, with interest rates and inflation jockeying for attention as the key driver of gold.
But unlike the 1st quarter, inflation was a more dominant factor than interest rates as 2021 came to a close. “This helped gold make up some of the ground it had lost in the early part of the year," the report said.
Neils Christensen added, “The gold market has once again proven itself that it is a global market that is more robust than just investment demand.”
Here are some of the report’s highlights:
Last week’s article highlighted the World Gold Council’s outlook for gold this year. All in all, things look potentially promising from their vantagepoint. So, hang in there.
In its own 2022 Outlook, too big to fail Goldman Sachs gives the probability of a recession this year as a modest 10%.
In coming to that conclusion, GS looks at three factors that have caused recessions in the past:
Inflation raged on in February, driving consumer price increases to a place we haven’t been to in four decades.
The latest numbers include a paucity of signs that inflation us leveling off, muchless subsiding.
What’s more, they largely exclude the impact of Russia’s invasion on oil, gas and other global commodity prices.
Most economists and WallStreeters, the Biden administration and members of Congress—especially Democrats—have been counting on inflation peaking early this year.
Unfortunately for them—not to mention consumers and businesses—the numbers are suggesting persistently high inflation for the foreseeable 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 National Inflation Association is out with its 2022 Gold Education Report and, boy, is it a doozy!
The NIA’s report chronicles gold’s historical path and suggests its future track, given its close relationship to factors like M-2 money supply, price inflation, the Fed Funds rate, the U.S. dollar index, and others.
Let’s Take a Closer Look.
The NIA says the #1 factor that determines the price of gold (in U.S. dollars) in the long run is the country’s M2 money supply per capita.
The report notes that in January 1980, when the U.S. last experienced a price inflation crisis, gold peaked at $850/oz. when M2 money supply per capita was a mere $6,569 ($1.617 trillion total M2, not seasonally adjusted).
Today, with M2 money supply per capita of $66,234 ($22.072 trillion total M2), the NIA believes dollar-priced gold could surpass $8,500 in the years ahead.
For the past 15 straight years, “gold always bottoms at the same exact price as a percentage of M2 money supply per capita of 2.7%,” according to the NIA.
In fact, when gold is less than 2.8% of M2 money supply per capita – like it is today – gold achieves median forward price increases as follows:
2.4% in 1 month (5.4 times higher than normal), 7.7% in 3 months (4.6 times higher), 10.8% in 6 months (2.8 times higher) and 24.9% in 1 year (6.4 times higher).
What’s more, gold gains 100% of the time in these situations.
Since 1968, gold’s long-term median price as a percentage of M2 money supply per capita has been 2.94%, ranging from a low of 1.2% in 1970 and 1.4% in the early 2000s to a high of just shy of 13% in 1980.
Before anyone had time to fully explain June's inflation numbers, the growls had already begun on trading desks and research shops:
Maybe in two weeks the Fed will raise interest rates by a full percentage point — the most at a single meeting in its modern history.
This increasingly likely scenario shows the jam the Fed has gotten itself into, with Fed officials seeking to express to the country a whatever-it-takes attitude. Neil Irwin and Courtenay Brown say that’s put them in a corner.
It’s a precarious situation where high inflation reports demand a mounting series of interest rate hikes and other policy moves that end with reduced consumer and business spending and a cratering economy.
Just last month, a high May inflation reading drove Fed leaders to make a last-minute shift to raise interest rates by 75 basis points, not the 50-point increase they had been signaling.
Well, here we go again. Wednesday's BLS report showed a 9.1% rise in the Consumer Price Index over the last year — and perhaps more significantly, the uptick of monthly core inflation to 0.7% in June.
And yesterday’s Producer Price Index, which essentially reflects wholesale prices charged to retailers, was even higher – at 11.3%.
It was a "major league disappointment," as Fed governor Christopher Waller said in a speech afterwards. The stock markets agreed.
The reports set off alarm bells throughout the financial world that recent history would repeat itself and, by day's end, the CME futures markets would almost fully price in a one-percentage-point rate hike at the end of the month.
I want to take a break in the self/home defense series and chat a bit about recent economic developments, including gold.
So the Feds tossed another 75 basis point hike on us this week. That was totally expected. They have to look like they’re doing something to combat the worst inflation in 40 years.
But in this world, in the year 2022, nothing is as it seems. Nothing is as it should be. See, on one hand they’re hiking rates into a slow economy, which is a recipe for disaster. But on the other hand, the one they hide behind their back, they’re buying up about 320 million dollars worth of assets per day.
Why is that? Remember a couple weeks back, where the ECB put out a news blurb that literally caught me so off guard, I had to rethink a lot of things? That blurb said that the ECB would use “unlimited” resources to keep the debt market intact.
The European Central Bank will unveil an unlimited bond-buying tool next week to help markets better adjust to steeper and faster interest-rate increases than previously thought, economists surveyed by Bloomberg say.
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.
That's it, that's the story. Okay, so what am I going off about here? Let's chat...
As any of you who have read my rantings for any length of time knows, I still have a masochistic love for gold and silver. I say that jokingly, since in reality, both have done pretty darned well if your time horizon is long enough.
When we first started pushing the idea for gold, back in the early 2000's it was under 300 bucks an ounce. So seeing it 20 years later at 1800, isn't a bad return. I was later to the silver party, getting involved there in the 07-09 area. But there too, we've done pretty well.
Many of you longer term readers will remember the two "Vegas plays" we did. By using a ladder of silver miners, the first play took 30 grand to 1.2 million. The second one several years later took 19 grand to 246 thousand. They were nice and boy I'd sure love to see the silver situation allow for a repeat of those good times.
I am not at all suggesting we're ready to whip up another Vegas play here, not yet. But I do think the building blocks are being assembled as we speak. I want you to consider a few things.
First off, silver has indeed done fairly well over the past several months. It was trading in the 18's in September and has recently flirted with 24. So it's been fairly perky. But it isn't the price that's got me the most interested, no it's the demand. We'll get back to that in a minute....
Gold has also done well lately. In October gold was trading in the 1600's and has recently flirted with 1900. Now, gold is the one that always gets the catchy headlines. When it was reported that China had bought up a whopping 30 tonnes of the stuff in December, after buying 32 tonnes of it in November, it made headlines from Bloomberg to Forbes.
Why are they buying it? What's China's angle? Is China trying to make its yuan convertible to gold, etc etc. The articles were fast and furious.
I had way more responses to my article about silver the other day than I expected. Why? Well, it’s not like I haven’t written about the stuff like a zillion times in the past, so I figured most folks knew my stance on things, and why I still think it’s one of the most undervalued commodities on earth.
But, as I said I got a lot of emails, a lot of questions and so I think I’ll use today to talk about them.
First off, the silver/gold miner stocks. Yes I like them. But NEVER get it in your head that any stock is safe. I repeat, any stock. Companies blow up, CEO’s get caught fondling kids, probable ounces in the ground get proven to be less than thought, their debt could catch up with them, I could go on and on. We “TRADE” the mining stocks. But they are not the same as having physical metal. You don’t “set it and forget it” with the miners. For maximum safety, you want physical.
Which of course brought up another question.
I appreciate your emails/articles about finance, life and more. I read your recent email on silver and while I would like to have more silver in my portfolio my issue is where do I store it?
I am not comfortable keeping large amounts of silver in the house. Not comfortable having large amounts in a safety deposit box in a bank so where? I would prefer my home not be a target for thieves if I can prevent it.
Lewis
Well Lewis, it’s like this. Anything you can’t stand over and protect with a gun in your hand…do you really own it? Safe deposit boxes are NO good. First off, most banks say you can’t store precious metals in them and secondly, what happens if the system goes down, and banks fold up? Did you know they’re legally allowed to go through your deposit box? Indeed.
Yes there are silver and gold storage companies, with mega high tech security, and each ounce you send there is registered, etc. But is that ideal? Do you want your silver sitting in a guarded establishment in say Nebraska, but you live in Florida? What if this whole world goes mad max, there’s no postal service/no UPS, no gasoline to drive there?
The secret to storing metals at “home” is you have to be concerned about 1) theft, and 2) especially if you have some cash along with your metals, is fire. So, how do we get around this? The theft part is relatively easy. First off, tell NO ONE that you own any. Why would anyone suspect that you’ve got enough precious metal, to want to come to your house? Don’t tell a soul you have metal at home. No one, including your kids. Secondly, consider shipping it to an elderly relatives place instead of yours. Even they don’t need to know what you’ve been sent, you can tell them it’s a heavy box of ammo or what have you. When it shows up, you go get it. That way, even if the UPS driver took note of a precious metal deliver and told his friends, it wouldn’t be “there.”
Amid a near-$100 billion run on smaller and medium-sized banks, gold prices appear heading toward all-time highs.
More and more analysts agree that there’s a lot more room for gold – and silver – to climb as global banks struggle and the Fed ponders further interest rate and quantitative tightening decisions.
Fed data show that bank customers collectively pulled over $98 billion from their accounts for the week ending March 15th, as Silicon Valley Bank and Signature Bank failed.
Friday, after Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and over a dozen other officials convened a special closed meeting of the Financial Stability Oversight Council, they insisted the nation’s banking system “remains sound and resilient.”
The run on bank deposits after the SVB and Signature Bank collapses is noteworthy. Yet, customers have been gradually withdrawing cash from banks for close to a year.
Since April 13, 2022, total deposits have fallen $655 billion or 3.6% – from a peak of $18.16 trillion to $17.50 trillion last Wednesday.
Volatility Good for Gold