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).
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:
Merriam-Webster defines “discount” as “a deduction from the usual cost of something, typically given for prompt or advance payment or to a special category of buyers.”
The Federal Reserve’s “discount rate” is the interest rate charged to commercial banks (yes, they’re special) and other depository institutions on loans they receive from their regional Fed bank's discount window.
Prices at the gas pump are soaring toward an all-time high, but drivers appear to be saying, oh well—for now anyway.
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.
Morale among American consumers —I prefer "people"— worsened earlier this month by generation-high inflation and a major war in eastern Europe.
The latest University of Michigan survey showed overall consumer sentiment falling in March for the fifth time in the last six months to an almost 11-year low.
These days, on top of a dreadful and frustrating two-year Covid malaise, everyday Americans are asking, "Why does anything matter?"
The Michigan numbers show the public mood souring over inflation worries have totally surpassed other indicators that show an otherwise strong (albeit volatile) economy.
The mood also bodes particularly ill for members of Congress and state houses hoping not to be, well, unelected.
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.
Even though the Fed has started hiking interest rates to rein in inflation running at a 4-decade high, consumers and investors think price rises will be tough to slow.
A new reading of consumer sentiment on Friday from the University of Michigan confirms that Americans’ inflation expectations remain at their highest level since 1981—and continue to grow.
The survey’s chief economist Richard Curtin observed that inflation is the chief culprit in consumers’ rising pessimism, with expectations of a 5.4% rise for the year ahead.
The Fed’s favorite inflation metric—the one that has Jay Powell mostly smiling during his REM dreams—showed mounting price pressures in February, as the PCE continued lrising to its highest annualized level since 1983.
Including gas and groceries (broken out by the government ostensibly because of their higher volatility), the headline Personal Consumption Expenditures index (the source of Powell’s nocturnal smiles) jumped 6.4% year over year.
Excluding food and energy prices, the so-called “core” PCE increased 5.4% from the same period in 2021.
By the way, the only reason I continue to mention the core PCE—or the core CPI for that matter—is because some readers like to know what these government-reported, nuanced numbers are doing.
So, if they’re good enough for the Fed, they're good enough for me (yes, my tongue is planted firmly in my cheek).
Neil Irwin asks: “When does a report showing a booming job market cause recession alarm bells to start clanging?”
His answer: “When exceptional jobs growth leads bond investors to bet that the Fed will raise rates so aggressively to quash inflation that it will be forced to reverse course later.” That's what happened on Friday.
When the bond yield curve inverts, as it did Friday, it usually means a recession isn’t too far behind.
And although that's being a tad presumptuous at this point, it's clear the Fed is walking a narrowing tightrope.
The Labor Department’s March employment data was strong again, with 431,000 jobs added, positive revisions to January and February numbers and a slightly falling unemployment rate.
More Americans are rejoining the labor market, and wages are showing steady growth.
Just two weeks earlier, Fed chair Jerome Powell said that he sees a "very, very tight labor market, tight to an unhealthy level."
The new numbers, however, suggest it’s becoming even more so, especially around the government’s headline unemployment rate.
That means the jobs numbers amount to full speed ahead for more aggressive Fed tightening, including what looks likely to be the first half-percentage point rate hike in 22 years at the early May policy meeting.
That's why the jobs numbers caused an 8% jump in 2-year Treasury yields, to 2.46% from 2.28% heading into last weekend. Longer-term yields rose by less, with the 10-year ending the day at 2.38%.
When long-term rates are lower than their short-term counterparts, that's called an inversion or an inverted yield curve, to be more precise.
It’s like bond investors are betting that the Fed will end up reversing those near-term rate hikes down the road (i.e., lowering them…again), presumably because of a weakening economy.
Hey all, we're mid week in a Holiday shortened market week. On Friday, the US markets are closed for Good Friday, and I'm happy about that. If we can close for significant people, we can certainly close for God and son.
Now I'm sure you looked at the headline of the article and figure that I lost my last marble. Deflation? Isn't that where prices of things come down? Indeed it is. And like the housing bubble of 2005 - 2007, this time will probably be no different. ( pay attention to that word probably, I'll come back to it later in this piece)
The biggest cure for high prices, is indeed high prices. When prices of things get too far out of whack, markets have an interesting way of putting them back in whack.
Naturally there's multiple mechanisms at work, but the bottom line is that there always comes a point, where "things" are just too expensive to be purchased. Then, things sit on shelves and ultimately have to be "marked down." This is going to happen again. But, and this is the big elephant... we probably have to endure something akin to a hyper inflation, before we get the big bust and everything falls down.
Right now, we've still got supply chain issues, manufacturing issues, etc. to deal with. Take China and their lockdown of tens of millions of people. NONE of those people are producing products that will end up on Wal-Mart's shelf. So, the products that are there or are in transit, will demand higher prices. No doubt.
But trees don't grow to the moon, and everything eventually reverts to the mean. Always and forever. The twist this time, is that the reasons for the hyper inflation, aren't rooted in the public doing incredibly stupid things. Think back to the "Tulip mania" of the 1600's. I don't know what kind of mushrooms they were snorting during that period, but people were giving up family farms for one tulip bulb. Peak insanity.
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.
Murray Mullen, who runs Mullen Group, a large shipping logistics companies, says: “Inflation…is out of control at the moment.”
One aspect of that are rising food prices, which Emily Peck notes are changing our grocery shopping routine — “already kind of weird after the pandemic pushed more Americans to eat at home.”
High inflation is behaving like a boomerang, spinning and wreaking havoc in all kinds of markets — from cars to housing, from stocks to groceries — and changing the way we live.
An Economy at a Crossroad
Emily Peck believes the country’s at a new threshold in this period of bad vibes – thanks to mixed economic signals, a new and intensifying war and, yes, continuing Covid weirdness.
Americans’ growing anxiety is rising as Jerome Powell and the Fed prepare to put the brakes on the economy, which could cool off the hot labor market – and further sink stocks and bonds and to a lesser extent precious metals.
Next week, the Fed will almost certainly hike rates by half a percentage point.
The other day I said that there’s not going to be any Fed rate hike and then they’re done. No “one and done” sort of thing. I also explained why I think that they’re going to drive down demand for things, by making it harder to borrow money.
Now, I see a LOT of the so called market genius people saying that the Feds will hike into a recession, then have to stop and reverse course and start a new round of cuts and increase their QE. I get it. I really do. It’s been the norm for years…decades actually.
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).
I’m writing this ahead of the three day Memorial Day Holiday, so I’ll try and keep it short. Like many of you, we too have some delicious plans for the weekend, and writing a long drawn-out article wasn’t high in the ranking. Ha. But I do want to talk briefly about the market and what I see happening.
For over two weeks, I’d been looking for a bear market bounce to occur. Maybe three actually. But each one ended up just being a one-day wonder, where on very low volume they’d send the DOW up 4, 5, 600 points, only to see it roll over and flop the next day. It was frustrating, not to mention the intra day volatility that often saw round trip swings of 900+ points. Great for daytrading, but not so hot for swing trades, or short term holds.
Well, starting this past Monday, the market (especially the DOW) decided it was finally time and we’ve seen them put in a powerful reversal. It was pretty overdue, as the market had fallen for 5 weeks in a row. But we finally got it and because people have short memories, there’s a ton of chatter that the bottom is in, and now we’re starting the first legs of a new bull market.
That could be possible. Anything is possible. But is it probable? That’s up for debate. So really quick, let’s ask a few questions and see where the answers lead us.
More warehouse workers, fewer waiters. More health store employees, fewer in public schools. The overall job market is getting back to its pre-pandemic strength, but it looks a lot different.
Courtenay Brown writes that disruptions over the past two years have shaken up the composition of the labor force — “with big implications for how industries will have to adjust to a longer-term worker shortfall.”
Economist Ellen Gaske at PGIM Fixed Income says, "I'm not looking for recovery to pre-pandemic levels in each industry. Some workers have left for greener pastures, and that's a good thing.”
She added, "There is more opportunity for workers to return to new jobs — where the industries are growing and the outlook is potentially brighter. That churning is what offers up a possibility of stronger productivity gains and increased standard of living."
Stubborn, persistent, historically high inflation continues to make a splash as we approach another, otherwise relaxing weekend.
Earlier this week, Pam and Russ Martens at Wall Street on Parade featured Schlafer’s Auto Body & Repair in Mendocino, California, which was making headlines in quite the inauspicious way.
Schlafer’s, you see, is home to an independent Chevron gas station and as of last weekend, it was charging what the Martens say is the highest regular gas price in the country – at $9.60 a gallon.
That’s 50% higher than the average price for regular in all of California ($6.37), according to the American Automobile Association’s gas tracker, and essentially twice the national average ($4.91).
Now, the Martens point out that California is far from the only state where complaints of outrageous price gouging are being heard.
The Daily Record of Maryland reports that a Shell station in Bowie, MD, was charging $6.13 for a gallon of regular gas, at the same time an Exxon station “less than a block away,” was charging over a dollar less.
The lion’s share of gas stations in the U.S. are independently owned and operated – not by a major oil company.