quantitative easing

We live in uncertain times, but one thing is (almost) certain: the Fed’s tightening cycle will be followed by an economic slowdown – if not worse.

There are many regularities in nature. After winter comes spring. After night comes day. After the Fed’s tightening cycle comes a recession. This month, the Fed will probably end quantitative easing and lift the federal funds rate. Will it trigger the next economic crisis?

It’s, of course, more nuanced, but the basic mechanism remains quite simple. Cuts in interest rates, maintaining them at very low levels for a prolonged time, and asset purchases – in other words, easy monetary policy and cheap money – lead to excessive risk-taking, investors’ complacency, periods of booms, and price bubbles. On the contrary, interest rate hikes and withdrawal of liquidity from the markets – i.e., tightening of monetary policy – tend to trigger economic busts, bursts of asset bubbles, and recessions. This happens because the amount of risk,

Gold & the USDX: Correlations

Will Biden Overheat the Economy and Gold?

Finance Press Release Finance Press Release 19.02.2021 13:14
Under the Biden administration the economy could overheat, thereby increasing inflation and the price of gold.In January, Biden unveiled his plan for stimulating the economy, which is struggling as the epidemic in the U.S. continues to unfold. Pundits welcomed the bold proposal of spending almost $2 trillion. Some expenditures, especially on vaccines and healthcare, sound pretty reasonable. However, $1.9 trillion is a lot of money! And a lot of federal debt , as the stimulus would be debt-funded!So, there is a risk that Biden’s package would overheat the economy and increase inflation . Surprisingly, even some mainstream economists who support the deficit spending, notice this possibility. For instance, former Treasury Secretary Larry Summers, said that Biden’s stimulus could lead the economy to overheat, and that the conventional wisdom is underestimating the risks of hitting capacity. Although he doesn’t oppose the idea of another stimulus, Summers noted that “if we get Covid behind us, we will have an economy that is on fire”.Indeed, this is a real possibility for good reasons. First, the proposed package would not only be large in absolute terms (the nominal amount), but also relative to the GDP . According to The Economist , Biden’s proposal is worth about nine percent of pre-crisis GDP, nearly twice the size of Obama’s aid package in the aftermath of the Great Recession .And the stimulus is also large relative to the likely shortfall in the aggregate demand. I’m referring here to the fact that the winter wave of the coronavirus would be less harmful for the economy – and that there have already been big economic stimuli added last year, including a $900 billion package passed no earlier than in December.Oh yes, politicians were really spendthrift in 2020, and – without counting the aid passed in December – they injected into the economy almost $3 trillion, or about 14 percent of pre-crisis GDP, much more than the decline in the aggregate demand. In other words, the policymakers added to the economy more money that was destroyed by the pandemic .But the tricky part is that Americans simply piled up most of this cash in bank accounts, or they used it for trading, for instance. Given the social-distancing measures and limited possibilities to spend money, this outcome shouldn’t actually be surprising. However, the hoarding of stimulus shows that it has not yet started to affect the economy – but that can change when the economy fully reopens and people unleash the hoarded money. If all this cash finally reaches the markets, prices should go up.You see, the current economic downturn is unusual. It doesn’t result from the fact that Americans don’t have enough income and cannot finance their expenditures. The problem is rather that people cannot spend it even if they wanted to. Indeed, economic disruption and subdued consumer spending are concentrated in certain sectors that are most sensitive to social distancing – such as the leisure, transport and hospitality industries – rather than spread widely throughout the whole economy. So, when people will finally be able to spend, they will probably do so, possibly accelerating inflation .As well, normally the Fed would tighten its monetary policy to prevent the rise in prices. But now the U.S. central bank wants to overshoot its inflation target, so it would not hike interest rates only because inflation raises to two percent or even moderately above it.Another potential inflationary driver is dollar depreciation, which seems likely, given the zero-interest rates policy and the expansion in the U.S. twin deficit .Hence, without the central bank neutralizing the fiscal exuberance, it’s possible that Biden’s plan would overheat the economy, at least temporarily. Of course, that’s not certain and given the small Democrats’ majority in Congress, the final stimulus could be lower than the proposed $1.9 trillion. But it would remain large and on top of previous aid packages and pent-up demand, which makes the overheating scenario quite likely.Actually, investors have already started to expect higher inflation in the future – as the chart below shows, the inflationary expectations have already surpassed pre-pandemic levels.From the fundamental perspective, this is good news for the gold market. After all, gold is bought by some investors as an inflation hedge . Moreover, the acceleration of inflation would lower real interest rates , keeping them deeply in negative territory, which would also be positive for the yellow metal.So, although the expectations of higher fiscal stimulus plunged gold prices in January, more government spending – and expansion in budget deficits and public debt – could ultimately turn out to be supportive factors for gold. Especially if easy fiscal policy will be accompanied by the accommodative monetary policy – in particular quantitative easing and a rising Fed’s balance sheet – and inflation.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
FOMC Minutes Disappoint Gold Bulls

FOMC Minutes Disappoint Gold Bulls

Finance Press Release Finance Press Release 22.02.2021 17:26
The recent FOMC minutes are hawkish and negative for the price of gold, but the Fed will remain generally dovish for some time.Last week, the Federal Open Market Committee (FOMC) published minutes from its last meeting in January . They reveal that Fed officials became more optimistic about the economy than they were in December. The main reasons behind the more upbeat economic projection were the progress in vaccinations, the government’s stimulus provided by the Consolidated Appropriations Act 2021, and the expectations of an additional sizable tranche of fiscal support in the pipeline:Most participants expected that the stimulus provided by the passage of the CAA in December, the likelihood of additional fiscal support, and anticipated continued progress in vaccinations would lead to a sizable boost in economic activity.The Committee members were so convinced that the longer-run prospects for the economy had improved, that they decided to skip reference to the risks to the outlook in their official communications:in light of the expected progress on vaccinations and the change in the outlook for fiscal policy, the medium-term prospects for the economy had improved enough that members decided that the reference in previous post-meeting statements to risks to the economic outlook over the medium term was no longer warranted.Hence, the recent minutes are generally hawkish and bad for gold . They show that the FOMC participants turned out to be more optimistic about the U.S. economy over the medium-term, as they started to expect “strong growth in employment, driven by continued progress on vaccinations and an associated rebound of economic activity and of consumer and business confidence, as well as accommodative fiscal and monetary policy.”And, although they acknowledged that inflation may rise somewhat in 2021, the Fed officials generally were not concerned about strong upward pressure, with “most” participants still believing that inflation risks were weighted to the downside rather to the upside. In other words, they expect more growth than inflation.Implications for GoldThe Fed officials that have become more optimistic about the economy are proving negative for gold prices. Gold shines most when the Fed is pessimistic about GDP growth and the labor market, as these two factors are more prone to loosen the Fed’s monetary policy . In other words, gold prices need more inflation than economic growth in order to grow. Alternatively, gold needs the Fed to do something and expand its monetary accommodation.Indeed, the last week hasn’t been good for the price of the yellow metal. As the chart below shows, it declined below $1,800 to $1,773 on Thursday (Feb. 18), the lowest level since November 2020.Of course, the decline in the gold prices was more related to the significant selloff in the U.S. bond market than to the FOMC minutes. The bond yields increased sharply. For instance, the 10-year TIPS yields rose from -1.06 on February 10 to -0.87 on February 18, 2021, as one can see in the chart below.However, both events clearly show elevated expectations about the medium-term economic growth. Both investors and central bankers have become more optimistic about the future amid progress in vaccinations and greater prospects for additional fiscal stimulus. The strengthened risk appetite has supported equity prices, making some investors head for the exits in the gold market .Having said that, although gold prices still have some room to go lower – especially if real interest rates rally further – the fundamentals are still positive . I’m referring here to the fact that the U.S. economy has fallen into the debt trap . Both private and public debt is enormous. In such an environment, the interest rates cannot significantly increase, as they would pose a great risk to an overvalued equity market and Treasury. So, the Fed wouldn’t allow for really high interest rates and would intervene, either through expanding its quantitative easing program or through capping the yield curve .Another issue is that the Fed is not going to change its dovish monetary policy anytime soon. Even in the recent, relatively upbeat minutes, Fed officials acknowledged that economic conditions were far from the central banks’ targets:Participants observed that the economy was far from achieving the Committee’s broad-based and inclusive goal of maximum employment and that even with a brisk pace of improvement in the labor market, achieving this goal would take some time (…) Participants noted that economic conditions were currently far from the Committee’s longer-run goals and that the stance for policy would need to remain accommodative until those goals were achieved.Moreover, the Fed’s staff assessed the financial vulnerabilities of the U.S. financial system as being notable . The asset valuation pressures are elevated, and vulnerabilities associated with business and household debt increased over the course of 2020, from levels that were already elevated before the outbreak of the pandemic . So, given all these fragilities, it is unlikely that we will see a really hawkish Fed or significantly higher interest rates. There is also a possibility of the next financial crisis, given the high debt levels. All these factors should support gold prices in the long-term, although more declines in the short-term are possible of course, due to the more positive sentiment among investors and rising bond yields.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold & the USDX: Correlations

Gold Declines Despite Powell’s Easy Stance

Finance Press Release Finance Press Release 25.02.2021 18:13
Powell testified before Congress and reiterated the Fed’s dovish stance, but nevertheless, gold continued to slide.On Tuesday, Powell testified before the United States Senate Committee on Banking, Housing, and Urban Affairs. He offered no big surprises, so the markets were little changed. But the price of gold ended that day with a slight loss, as the chart below shows – perhaps just because Powell didn’t surprise, and struck a dovish tone.Anyway, what did the Fed Chair say? In his prepared remarks, Powell acknowledged the improved outlook for later this year . As I noted in the last edition of the Fundamental Gold Report about the recent FOMC minutes , a more optimistic Fed about the U.S. economy is bad news for gold.Additionally, Powell downplayed concerns about the recent rises in the bond yields (see the chart below), calling them “a statement of confidence” for an improving U.S. economic outlook, or “a robust and ultimately complete recovery”. This is also a negative comment for the yellow metal, as it would prefer the Fed reacting more aggressively to the increasing rates, and, for instance, implementing the yield curve control . The higher the yields, the worse it is for gold, which is a non-interest bearing asset.However, Powell also made some dovish comments . First of all, he reiterated that the Fed’s easy stance will last very long – longer than it used to be in the past . This is because the Fed implemented last year a new monetary framework, according to which the U.S. monetary policy will be informed by the assessments of shortfalls of employment from its maximum level, rather than by deviations from its maximum level. Moreover, the Fed will seek to achieve inflation that averages two percent over time. These changes imply that the Fed will not tighten monetary policy solely in response to a strong labor market, but only to an increase in inflation . However,But inflation must not merely reach two percent – it should rise moderately above two percent for some time in order to prompt the U.S. central bank to taper the quantitative easing and hike the federal funds rate .The second reason why the interest rates will stay lower for longer is that the economy is a long way from the Fed’s employment and inflation goals, and “it is likely to take some time for substantial further progress to be achieved”. On Wednesday, Powell acknowledged that it may take more than three years to reach these goals. This means that the Fed will treat any possible increases in inflation this year as temporary and will leave interest rates unchanged.Implications for GoldWhat does Powell’s testimony imply for the gold market? Well, gold bulls may be disappointed as the Fed Chair didn’t sound too dovish . He neither announced an expansion in the quantitative easing, nor the yield curve control, nor negative interest rates , nor a “whatever it takes” approach. And it seems that the yellow metal needs such things right now in order to survive – just like fish need water.However, the rising bond yields could become a problem at one point for the Fed. If they continue to rise, Uncle Sam will not be happy, and the Fed will have to step into the market to buy government bonds. The central bank and Treasury are good old friends and the close relationship between Powell and Yellen may only strengthen this beautiful friendship – and support gold prices.Moreover, the increasing bond yields (despite an ultra-dovish Fed) imply that reflation trade is strong. So far, investors just expect a return of inflation to a moderate level, but given the enormous surge in the broad money supply (see the chart below) and Biden’s mammoth fiscal plan, the risk of overheating is non-negligible.It would be really strange if such an aggressive monetary expansion wouldn’t affect the prices. As one can see, the growth in the M2 money supply is 2.5 times faster than during the Great Recession . Actually, we are already seeing inflation – but in the asset markets, not the CPI . The stock and house prices are surging. The commodity sector has also already been gaining and gold may follow suit .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
ECB Accelerates Its Asset Purchases. Gold Needs Fed to Follow Suit

ECB Accelerates Its Asset Purchases. Gold Needs Fed to Follow Suit

Finance Press Release Finance Press Release 16.03.2021 16:16
The ECB accelerated its asset purchases, but unless the Fed follows suit, gold may continue its bearish trend.On Thursday (Mar. 11), the European Central Bank decided to accelerate its asset buying under the Pandemic Emergency Purchase Program :Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEPP over the next quarter to be conducted at a significantly higher pace than during the first months of this year.The decision came after a rise in the European bond yields that has mirrored a similar move in the U.S. Treasuries (see the chart below). Christine Lagarde , the ECB President, was afraid that increasing borrowing costs could hamper the economic recovery, so she decided to talk down the bond yields.Indeed, the growth forecasts for the EU have deteriorated recently amid the persistence of the pandemic and painfully slow rollout of the vaccines. According to the ECB, the real GDP of the bloc is likely to contract again in the first quarter of the year. So, the increase in the market interest rates could additionally drag down the already fragile economic recovery:Market interest rates have increased since the start of the year, which poses a risk to wider financing conditions. Banks use risk-free interest rates and sovereign bond yields as key references for determining credit conditions. If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy. This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.Implications for GoldWhat does this all mean for gold prices? Well, the ECB’s move should prove rather negative for the price of gold , at least initially. This is because the loosening of the European monetary policy could weaken both the euro and gold against the U.S. dollar. Indeed, as the chart below shows, although the price of gold increased on Thursday, it declined one day later.Moreover, the acceleration in the ECB’s quantitative easing could further widen the divergence in the interest rates (that started rising in the third quarter of 2020, as one can see in the chart below) between the U.S. and the EU, which should also support the greenback at the expense of the yellow metal.On the other hand, the fact that the ECB has intervened in the markets – announcing acceleration in the pace of its asset buying program, after a certain rebound in the bond yields – could turn out to be positive for gold prices, at least in the long-run. This is because it shows how fragile the modern economies are and how dependent they have become on cheap borrowing guaranteed by the central banks.As I noticed earlier in the past, we are in the debt trap – and the central banks will not allow for the true normalization of the interest rates. The latest ECB’s action is the best confirmation that suppression of the real interest rates will continue, thus supporting gold prices. After all, the ECB has effectively put a cap on bond yields, introducing an informal yield curve control.So far, only the ECB has intervened in the markets, but other central banks could follow suit. This week, the Fed will announce its decision on the monetary policy. And we cannot exclude that the American central bank will also signal a more dovish stance to calm the turmoil in the bond markets and prevent further increases in the interest rates. One thing is certain: gold needs some fresh dovish hints from the Fed to go up. Unless the Fed further eases its stance, I’m afraid that gold will continue its bearish trend .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Will Trump-Biden Twin Deficit Support Gold?

Will Trump-Biden Twin Deficit Support Gold?

Finance Press Release Finance Press Release 22.03.2021 17:48
Twin deficits could negatively affect the U.S. economy, thereby supporting the yellow metal.Twins. Many parents will tell you that they double the blessing. But economists would disagree, claiming that twins – i.e., twin deficits – could be negative for the economy. The recent deterioration in the U.S. current account and fiscal balance has sparked renewed debate over the twin deficit and its impact on the exchange rate – and the price of gold.A twin deficit occurs when large fiscal deficits coexist with big trade deficits . The former happens when the government spends more money than it raises with taxes, while the latter is the result of imports exceeding exports. A historical example of the U.S. twin deficit occurred in the 1980s, when a significant expansion in the federal budget deficit accompanied a sharp deterioration in the nation’s current account balance. According to the Institute for International Economics’ report , “from 1980 to 1986, the federal budget deficit increased from 2.7 percent of GDP to 5 percent of GDP ($220 billion) and the current account deficit increased from 0 to 3.5 percent of GDP ($153 billion).”Another example might be the 2000s. According to the New York Fed’s research paper , from 2001 to 2005, the U.S. current account and fiscal balances plunged by 3 and 4 percent of GDP , respectively. So, there is some correlation between these two. And some economists even believe that there is a causal relationship, i.e., that increases in budget deficits cause an increase in current account deficits. The link is believed to work as follows: higher deficits increase consumption, so imports expand and the trade deficit widens. However, both deficits actually have a common root: the increase in the money supply . When the Fed creates money ex nihilo to monetize the federal debt , it enables America to both borrow and consume more goods from abroad.Regardless, in absolute terms, these old twin deficits were miniscule compared to the current one. As the chart below shows, the U.S. current account deficit (green line) has expanded significantly under Trump (despite all the trade wars !) and is approaching the historical record of $800 billion seen in 2006.But what happened to the U.S. trade deficit is nothing compared to the fiscal deficit! As you can see in the chart above, it ballooned from $984 billion in fiscal year of 2019 to $3.1 trillion in 2020!So, if we simply add these two deficits together, we will see that that the U.S. twin deficits have reached a record level . As the chart below shows, it has expended from $850 billion in 2014 to $3.8 trillion in 2020!Now, the question is how the twin deficits could affect the price of gold. Well, from looking at the chart above, it’s hard to tell. Gold rallied in the 1970s, when the twin deficit was miniscule, while it entered a bear phase when the twin deficit started to increase. However, the yellow metal skyrocketed both in the 2000s and in the 2020s, when the twin deficit ballooned.The key issue is what distinguishes the 1980s from the 2000s (and 2020)? I’ll tell you. In the former period, expansionary fiscal policy coincided with tight monetary policy . In consequence, the real interest rates increased, which encouraged capital inflows and strengthened the U.S. dollar. So, gold was melting.Luckily for the yellow metal, this time, the easy fiscal policy is accompanied by the accommodative monetary policy . The Fed has already slashed the federal funds rate and it’s conducting quantitative easing to suppress the bond yields . Actually, some analysts believe that the U.S. central bank will implement the yield curve control to prevent any significant increases in the interest rates .Hence, the combination of American monetary drunkenness and fiscal irresponsibility that largely contributed to the great expansion in the twin deficits should result in the weakening of the greenback . This, at least, is what we observed in the 2000s, as the chart below shows.And this depreciation of the U.S. dollar should ultimately support gold prices , especially if we see reflation and the next commodity boom. It’s true that since its peak in August 2020, gold has been positively correlated with the greenback, but the inverse relationship can be restored one day. Investors shouldn’t forget that the dollar is not the only driver of gold prices – other factors also play a role. In the second half of the past year, both the real yields and the risk appetite increased, which outweighed the impact of the weakening dollar. Luckily, the Fed is ready to prevent any significant upward pressure on the Treasury yields coming from the twin deficits. That’s good for gold.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Powell Sounds Dovish, but Is He Dovish Enough for Gold?

Powell Sounds Dovish, but Is He Dovish Enough for Gold?

Finance Press Release Finance Press Release 23.03.2021 16:13
Although dovish, Powell downplayed the bond yield rally. The Fed’s more tolerant stance on inflation is good for gold, but the metal may continue its bearish trend in the short-term.In the last edition of the Fundamental Gold Report, I analyzed the latest FOMC statement on monetary policy and economic projections . Today, I would like to focus more on Powell’s press conference . My reading is that the Fed Chair sounded like a dove. First of all, he emphasized several times that the jump in inflation this year will be only transient , resulting from the base effects and rebound in spending as the economy continues to reopen. And Powell explicitly stated that the US central bank will not react to this rise in consumer prices (emphasis added):Over the next few months, 12-month measures of inflation will move up as the very low readings from March and April of last year fall out of the calculation. Beyond these base effects, we could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near term. However, these one-time increases in prices are likely to have only transient effects on inflation (…) I would note that a transitory rise in inflation above 2 percent, as seems likely to occur this year, would not meet this standard [i.e., the Fed’s goals of maximum employment and stable prices].Second, Powell also pointed out that we are still far, far away from reaching the Fed’s employment and inflation goals. So, investors shouldn’t expect any hikes in the interest rates or any taper tantrum anytime soon. He was very clear on that, saying that it’s not yet time to start talking about tapering, and that the Fed will announce well in advance any decision to taper its quantitative easing program. Indeed, in a response to the question “is it time to start talking about talking about tapering yet”, he said:Not yet. So, as you pointed out, we’ve said that we would continue asset purchases at this pace, until we see substantial further progress. And that's actual progress, not forecast progress. (…) We also understand that we will want to provide as much advance notice of any potential taper as possible. So, when we see that we’re on track, when we see actual data coming in that suggests that we're on track to perhaps achieve substantial further progress, then we'll say so. And we'll say so well in advance of any decision to actually taper.Third, the Fed Chair reiterated a few times that the Fed’s changed its approach and it will not react to the forecast progress, but only to the actual progress , stating that:the fundamental change in in our framework is that we’re not going to act preemptively based on forecasts for the most part. And we’re going to wait to see actual data (…) And we’re committed to maintaining that patiently accommodative stance until the job is well and truly done.It makes some sense, of course, but it also increases the risk that the Fed’s response to rising inflation will be delayed. The same stance was adopted in the 1970s, when the central bankers believed that they would have plenty of time to react to any dangerous increases in consumer prices. But such an approach resulted in inflation getting out of control, leading to great stagflation . Gold shined then.Implications for GoldWhat does this all mean for the gold prices? Well, latest Powell’s remarks were dovish, which should support the yellow metal. But, as the chart below shows, we don’t see such a support reflected in the gold prices (London P.M. Fix).Part of the problem is that the bond yields continued to rise, after a short pullback amid the FOMC statement, exerting further downward pressure on the gold prices. A related issue here is that although Powell sounded generally dovish , he expressed a relaxed view on the current rally in the interest rates. Indeed, when replying to a question on the bond selloff, Powell just said that “we think the stance of our monetary policy remains appropriate”. So, his comments imply that the bond yields have room to move further up in the near-term, thus hurting the price of gold .However, there is certainly a level of interest rates that would be uncomfortable for the Fed (and Treasury), forcing it to intervene more decisively in the financial markets, and we’re not necessarily far from this level. Furthermore, given the rising inflation and inflation expectations, the real interest rates should rise at a slower pace than the nominal yields, and if they do actually fall, they would support the price of gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Dovish Fed and Higher Inflation Equals Stronger Gold

Dovish Fed and Higher Inflation Equals Stronger Gold

Finance Press Release Finance Press Release 13.04.2021 16:47
The latest FOMC minutes were dovish, especially in light of the recent increase in inflation. That’s good for gold.Last week, The Federal Open Market Committee (FOMC) published minutes from its last meeting in March . They show that – in light of positive economic indicators – the members of the Committee turned out to be more optimistic about the U.S. economy since the previous meeting. But this is what we already know from the March economic projections.What is new and much more important is that Fed officials expressed the view that despite all the progress, the economic situation remained unsatisfactory with many indicators still far from the pre-pandemic level and the Fed’s long-term targets:Despite these positive indicators and an improved public health situation, participants agreed that the economy remained far from the Committee's longer-run goals and that the path ahead remained highly uncertain, with the pandemic continuing to pose considerable risks to the outlook.In consequence – and this is probably the key message from the recent minutes – the FOMC members reaffirmed that they are in no rush to taper the quantitative easing . Furthermore, the U.S. central bank will announce a change in the pace of asset purchases well in advance:Participants noted that it would likely be some time until substantial further progress toward the Committee's maximum-employment and price-stability goals would be realized and that, consistent with the Committee's outcome-based guidance, asset purchases would continue at least at the current pace until then. A number of participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases. The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee's goals.And the hike in the federal funds rate will happen only after the start of the normalization of the Fed’s balance sheet . So, given a lack of any communication in this regard, investors shouldn’t expect any increases in the interest rates for years .Last but not least, the Fed not only started to expect higher inflation – as a reminder, the FOMC participants expect 2.4 percent PCE inflation in 2021 – but it also “viewed the risks of upside inflationary pressures as having increased since the previous forecast”. However, the central bankers still believe that the increase in inflation this year will be transitory due to the base effects and supply disruptions:In the near term, the 12-month change in PCE prices was expected to move above 2 percent as the low inflation readings from the spring of last year drop out of the calculation. Most participants also pointed to supply constraints that could contribute to price increases for some goods in coming months as the economy continued to reopen. After the transitory effects of these factors fade, however, participants generally anticipated that annual inflation readings would edge down next year.This is a puzzling view in light of the fact that many participants “judged that the release of pent-up demand could boost consumption growth further as social distancing waned.” So, in some magical way, the release of pent-up demand could boost consumption, but not prices, and inflation could be increased only by supply factor, but not by demand factors.Implications for GoldWhat do the recent FOMC minutes imply for the yellow metal? Well, the increase in expected and actual inflation rates combined with the Fed’s dovish stance could create downward pressure on the real interest rates and the U.S. dollar, thus supporting gold prices . The yellow metal could also benefit from the elevated demand for inflation hedges in an environment of stronger upward pressure on prices.Indeed, the price of gold jumped shortly on Thursday (Apr. 8) above $1,750, as the chart below shows. This upward move was temporary, though, but that can change soon, as the inflation genie has popped out of the bottle.The Producer Price Index increased by one percent in March , twice more than in February, and significantly above the expectations of a rise of 0.4 percent. As well, the final demand index moved up 4.2 percent for the twelve months ended in March, the largest increase since September 2011. Meanwhile, the index for all commodities surged even more (12 percent!), in the fastest pace since the Great Recession , as the chart below shows. Importantly, the Consumer Price Index has also been rising recently (I will cover this report in the next edition of the Fundamental Gold Report).Of course, the rise in inflation may also increase the nominal bond yields, which could be negative for the gold market. However, the rally in the bond yields was mainly caused by the fact that investors priced in a more aggressive path of the federal funds rate than the FOMC members have indicated. But after the recent minutes it seems that these traders are starting to capitulate and will not fight the Fed anymore. This would be good news for the gold market.Indeed, the second quarter started much better for the yellow metal than the awful beginning of the year, and there are some reasons (dovish Fed, higher inflation, limited potential for further rally in the bond yields) for cautious optimism. But the key problem is that the Fed is still relatively hawkish compared to the Bank of Japan or the European Central Bank . Well, we will see, stay tuned!If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Will Rates Rally Further, Pushing Gold Down?

Will Rates Rally Further, Pushing Gold Down?

Finance Press Release Finance Press Release 16.04.2021 16:54
The recent rally in the bond yields pushed gold prices down, but this trend won’t continue forever, as the Fed will likely be forced to step in.In March, we saw a continuation of the rally in bond yields that started in February. As the chart below shows, the 10-year real interest rates have soared from -1.06 on February 10 to -0.66 percent on March 23.What is clear from the chart is the strong correlation between the 10-year TIPS yields and the gold prices. As a consequence, the rising bond yields made gold struggle. However, in March, the real interest rates were much more choppy compared to February, when they surged decisively. It may signal a lack of fuel for the further rally, at least for a while.Now, what is important here is that despite the recent jump in the real yields, they remain extremely low from the historical point of view . And they remain well below zero! This is good news for the gold market, as the yellow metal shines the most when real interest rates are negative.Of course, the direction of change is also very important, not just the absolute level. So, the question is, will the rates increase further? Well, it’s unfortunately possible, as the improving economic outlook and risk appetite are encouraging investors to buy stocks rather than bonds.On the other hand, the rising inflation expectations suggest that real yields may struggle to increase further , or they actually may go down. As the chart below shows, the market expectations of inflation in the next 10 years, derived from the Treasuries, have risen from 0.50 at the bottom in March 2020 to 2.31 on March 24, 2021.Given the increase that has already taken place, the further rise may be limited. But the broad money supply is still rising at an accelerating pace, and investors still don’t believe that the Fed will not hike the federal funds rate to combat rising inflation. They don’t buy the new monetary framework and all the talking about letting inflation overshoot the Fed’s target. Of course, the promise to be irresponsible in the future is not very credible, but investors shouldn’t underestimate the recklessness of central bankers .You see, we live in an era of weak policymakers unable to make serious commitments, or take unpopular actions, contrary to the needs of Wall Street and the government. For example, Janet Yellen , as a Treasury Secretary, should stress fiscal discipline – instead, she praised the “go big” approach of the new administration. Congress has already passed the $1.9 trillion fiscal stimulus and the next additional spending is coming . The legislative proposal of new government expenditures on infrastructure and other priorities (such as climate change and the labor market) could collectively cost more than $3 trillion.It’s true that the additional government spending and the necessary borrowing could push up the yields (this is an important downward risk for gold). But rising interest rates could hamper the economic recovery and make government financing more costly, further ballooning already mammoth fiscal deficits . So, the Fed will likely have to step in and expand its quantitative easing program or introduce other measures, such as the yield curve control, to curb the long-term interest rates. It will weaken the dollar, thus supporting gold prices.As a reminder, the Bank of Japan has started to target the yield on 10-year government bonds at around zero percent in 2016, as it decided that the rapid monetary base expansion via large-scale asset purchases was unsustainable. More recently, the European Central Bank has announced in March the acceleration in the pace of its QE in a response to the rally in bond yields.So, do you really think that the Fed won’t follow suit? That Powell will not help Yellen, his former boss from the Fed? The sharp increase in yields would be inconsistent with the Fed’s dovish policy and the overall debt-driven economic growth. Hence, if the interest rates increase too much, be sure that the Fed will do something, providing a long-awaited support for the price of gold.What is “too much”? Not so much, at least not in the debt-trap we live in. Some analysts believe that this could occur if nominal 10-year Treasury yields rise over 2 percent, not too far from the current levels, as one can see in the chart below.Should we be surprised, given the bond bubble created by the central banks? They have kept the bond yields artificially depressed for years, so even a modest normalization – perfectly justified by the expectations of economic recovery and rising inflation – could collapse the house of cards and cause a financial crisis . Hence, although markets have become more optimistic recently, I’m afraid that bears and black swans haven’t said the last word yet. And neither has gold.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get a 7-day no-obligation trial for all of our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Will a Fiscal Revolution Raise Gold to the Throne?

Will a Fiscal Revolution Raise Gold to the Throne?

Finance Press Release Finance Press Release 23.04.2021 16:29
Revolution, baby! There is growing acceptance for an aggressive fiscal policy, which could be supportive for gold prices from the fundamental, long-term point of view.We live in turbulent times. The pandemic is still raging and will most likely have lost lasting effects on our society. But a revolution is also happening right before our eyes. And I don’t mean another storming of the U.S. Capitol or the clash of individual investors with big fish on Wall Street. I have in mind something less spectacular but potentially more influential: a macroeconomic revolution.I refer here to the growing acceptance of easy fiscal policy . In the aftermath of the Great Recession , the central banks adopted an aggressive monetary policy , slashing interest rates to almost zero and introducing quantitative easing . It has become a new norm since then.But fiscal policy was another kettle of fish. Although almost nobody cared about balanced government budgets, people at least pretended to worry about overly large fiscal deficits and an overly quick accumulation of public debt . For example, while Obama wanted $1.8 trillion in fiscal stimulus in a response to the global financial crisis of 2007-09, Congress passed a package of about $800 billion, as Republicans opposed larger spending. But in March 2020, Congress passed the CARES act worth about $2 trillion (and additional significant stimulus in December 2020), with the full support of Republicans.Even Germany – the country famous for its fiscal conservatism – ran a fiscal deficit in 2020 and – what’s more – agreed to issue bonds jointly with other EU countries, although it was previously a taboo. The International Monetary Fund (IMF), another bastion of economic orthodoxy, which advocated for austerity and balanced budgets for years, gave up during the epidemic and started to call for more fiscal stimulus to fight the economic crisis .And this fiscal revolution is already seen in data. As the chart below shows, the U.S. fiscal deficit has increased from 4.6 percent of GDP in 2019 (which was already at an elevated level) to 15 percent of GDP in 2020, the highest level in the post-war era.According to the IMF’s Fiscal Monitor Update from January 2021 , fiscal deficits amounted to 13.3 percent of GDP , on average, in advanced economies, in 2021, a spike from 3.3 percent seen in 2019. As a consequence, the gross global debt approached 98 percent in 2020 and it’s projected to reach 99.5 percent of the world’s GDP by the end of this year.What is important to note here is that government support wasn’t limited mainly to the financial institutions and big companies (such as automakers), as was the case in 2009, but it was distributed more widely. There was a huge direct money transfer to Main Street, including checks for practically all citizens. This is important for two reasons.First, money flowing into the economy through nonfinancial institutions and people’s accounts may be more inflationary. This is because money doesn’t stay in the financial market where it mainly raises asset prices, but it’s more likely to be spent on consumer goods, boosting the CPI inflation rate . Higher officially reported inflation (and relatively lower asset prices) should support gold , which is seen by investors as an inflation hedge .Second, the direct cash transfer to the people creates a dangerous precedent. From now, each time the economy falls into crisis, people will demand checks. It means that fiscal responses would have to be increasingly larger to meet the inflated expectations of the public. It also implies that we are approaching a universal basic income, with its mammoth fiscal costs and all related negative economic and social consequences.Summing up, we live in revolutionary times. The old paradigm that “central banks are the only game in town” has been replaced by the idea that fiscal policy should be more aggressively used. Maintaining balanced budgets is also a dead concept – who would care about deficits when interest rates are so low?However, assigning a greater role to fiscal policy in achieving macroeconomic goals increases the risk of higher inflation and macroeconomic instability, as politicians tend to be pro-cyclical and reckless. After all, the economic orthodoxy that monetary policy is better suited to achieve macroeconomic stability didn’t come out from nowhere, but from awful experiences of the fiscal follies of the past. I’m not a fan of central bankers, but they are at least less short-sighted than politicians who think mainly about how to win the next election and stay in power.Hence, the growing acceptance of easy fiscal policy should be positive for gold prices , especially considering that it will be accompanied by an accommodative monetary policy. Such a policy mix should increase the public debt and inflation, which could support gold prices. The caveat is that investors have so far welcomed more stimulus flowing from both the Fed and the Treasury. But this “go big” approach of Powell and Yellen increases the longer-term risk for the economy, which could materialize – similar to the pandemic – sooner than anyone thought.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get a 7-day no-obligation trial for all of our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Will Powell Lull Gold Bulls to Sweet Sleep?

Will Powell Lull Gold Bulls to Sweet Sleep?

Finance Press Release Finance Press Release 29.04.2021 16:20
The Fed left its monetary policy unchanged. However, the lack of any action amid economic recovery is dovish – good news for gold.On Wednesday (Apr. 28), the FOMC has published its newest statement on monetary policy . The statement wasn’t significantly altered. The main change is that the Fed has noticed the progress on vaccinations and strong policy support, and that, in consequence, the economic outlook has improved.Previously, the US central bank said that indicators of economic activity and employment “have turned up recently, although the sectors most adversely affected by the pandemic remain weak”, while now these indicators “have strengthened”, while “the sectors most adversely affected by the pandemic remain weak but have shown improvement”. So, the Fed acknowledged the fact that the economy has significantly recovered .Similarly, the US central bank is no longer considering the epidemic as posing “considerable” risks to the economic outlook. Instead, the pandemic “continues to weigh on the economy, and risks to the economic outlook remain”. It means that the Fed has become more optimistic and does not see risks as considerable any longer. This is bad for the price of gold although it’s not a very surprising modification, given the progress in vaccinations. However, no hawkish actions will follow, so any bearish impact for gold should be limited.Another important alteration is that inflation no longer “continues to run below 2 percent”, but it “has risen, largely reflecting transitory factors”. This would be normally a hawkish change with bearish implications for gold. But the Fed doesn’t worry about inflation and is not going to hike the federal funds rate anytime soon, even when inflation remains above the target for some time. As Powell pointed out, “the economy is a long way from our goals, and it is likely to take some time for substantial further progress to be achieved.” Thus, gold bulls may sleep peacefully .Implications for GoldIndeed, they can relax with Mr. Powell on guard. The Fed Chair has reiterated during his press conference that the US central bank is not going to tighten its dovish stance and reduce the quantitative easing:It’s not time to start talking about tapering. We'll let the public know well in advance. It will take some time before we see substantial further progress. We had one great jobs report. It is not enough to start talking about tapering. We'll need to see more data.Uncle Jay and his bedtime stories… about inflation that is only “transitory”. Once upon a time,the PCE inflation [is] expected to move above 2% in the near term. But these one-time increases in prices are likely to have only transitory effects on inflation.Well, sure. Nonetheless, this is the favorite story of central bankers all over the world told to naive citizens. Just wait for the April inflation readings – they will be something! Of course, it is going to be too early to declare persistently higher inflation, but I’m afraid that the Fed may be too carefree about such a possibility.So, in the aftermath of the generally dovish FOMC meeting, the dollar slid yesterday, while the price of gold went up . Gold continued its recovery from the March bottom, as depicted in the chart below. This makes sense: after all, the Fed reiterated that it would maintain its current ultra easy stance for the foreseeable future, despite the fact of acknowledged improved economic outlook.In other words, the Fed’s inaction made the US central bank more dovish given the better economic outlook and higher inflation. The statement’s language about the coronavirus and the economy was more optimistic, but inflation was considered to be transitory and no hawkish actions were signaled. So, the recent FOMC meeting should be positive for the gold prices from the fundamental point of view , although gold may continue its recent, generally lackluster performance for a while. Of course, the expansion of Fed’s accommodative monetary policy would be much better for the yellow metal, but the lack of any hawkish signals could still clean the room for gold for further upward moves.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Lumber and Copper Are Surging. Will Gold Join the Party?

Lumber and Copper Are Surging. Will Gold Join the Party?

Finance Press Release Finance Press Release 06.05.2021 15:47
There’s no inflation … None at all. Only, completely by accident, lumber prices are skyrocketing. Gold is likely to remain silent, but it may catch up later.The rise in lumber prices can be seen in the chart below:What a surge! It happened because of the limited supply and strong demand for new houses. But it’s not just lumber. Many raw commodities are rallying too. The price of copper, for example, has just approached its record height (from February 2011), as the recovery of the global economy boosted demand. Just take a look at the price below.Indeed, the trend is up. Commodity prices are on the rise as a whole as the chart below clearly shows. Even Warren Buffet warned investors against a “red hot” recovery, saying that his portfolio companies were “seeing very substantial inflation” amid shortages of raw materials.Of course, commodity price inflation and consumer price inflation are quite different phenomena, as consumers don’t buy lumber or copper directly but only finished products made from these materials. However, at least part of this producer price inflation may translate into higher consumer prices, as producers’ ability to pass higher costs on consumers has recently increased – people have a large holding of cash and are willing to spend it.Implications for GoldWhat do rallying commodity prices imply for the precious metals? Well, rising commodity prices signal higher inflation, which should increase the demand for gold as an inflation hedge . Of course, there might be some supply disruptions and bottlenecks in a few commodities. However, the widespread character and the extent of the increase in prices suggest that monetary policy is to blame here and that inflation won’t be just transitory as the Fed claims.What’s more, the commodity boom is usually a good time for precious metals . As the chart below shows, there is a strong positive correlation between the broad commodity index and the precious metals index.There was a big divergence during the pandemic when commodities plunged, while gold at the same time shined brightly as a safe-haven asset . So, the current lackluster performance of the yellow metal is perfectly understandable during the economic recovery.Indeed, the rebound in gold has been weak, and gold hasn’t even crossed $1,800 yet, although it was close this week, as the chart below shows.There was a rally on Monday (May 3) amid a retreat in the US dollar, but we were back in the doldrums on Tuesday, amid Yellen’s remarks about higher bond yields . She said that interest rates could rise to prevent the economy from overheating:It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat, even though the additional spending is relatively small relative to the size of the economyHowever, Yellen clarified her statements later, explaining that she was not recommending or predicting that the Fed should hike interest rates. Additionally, several FOMC members made their speeches, presenting the dovish view on the Fed’s monetary policy . For example, Richard Clarida, Fed Vice Chair, said that the economy was still a long way from the Fed’s goals and that the US central bank wasn’t thinking about reducing its quantitative easing program .Anyway, the price of gold has been trading sideways recently as it couldn’t break out of the $1,700-$1,800 price range. This inability can be frustrating, but the inflationary pressure could help the yellow metal to free itself from the shackles. The bull market in gold started in 2019, well ahead of the commodities. Now, there is a correction , but gold may join the party later . It’s important to remember that reflation has two phases: the growth phase when raw materials outperform gold and the inflation phase when gold catches up with the commodities. So, we may have to wait for a breakout a little longer, but once we get it, new investors may flow into the market, strengthening the upward move.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Caution, the crypto sector is getting a bit overheated in the short-term

Caution, the crypto sector is getting a bit overheated in the short-term

Florian Grummes Florian Grummes 13.05.2021 12:41
It’s been a massive rally over the last 15 months in the crypto sector since bitcoin bottom at US$3,800 on March 13th, 2020. reaching price at around US$65,000 bitcoin saw a price explosion of more than 1,600%! Now however the sector seems ripe for some form of a healthy pullback and a breather. Bitcoin – Caution, the crypto sector is getting a bit overheated in the short-term!ReviewBitcoin year to date, Daily Chart as of May 10th, 2021. Source: TradingviewSince the beginning of the year, the price of Bitcoin has increased by almost 100%. Thus, the outperformance of Bitcoin compared to almost all other asset classes continued mercilessly. It seems as if bitcoin, or rather the crypto sector, wants to suck up everything like a black hole.Bitcoin´s waning momentum is a warning signalHowever, the Bitcoin markets have also been witnessing an increasingly waning momentum since late February. In particular, the pace of the rise had slowed down more and more since prices pushed above US$60,000 in March for the first time. Although another new all-time high was reached on April 14th at around US$65,000, the bulls are showing more and more signs of fatigue after the spectacular rally. Interestingly enough, this last new all-time high coincided exactly with the stock market debut of Coinbase.Only a few days later, a significant price slide down to just under US$50,000 happened, which was caused by a huge wave of liquidations. According to data provider Bybt, traders lost a total of more than US$10.1 billion that Sunday through liquidations forced by crypto exchanges. More than 90% of the funds liquidated that day came from bullish bets on Bitcoin or other digital currencies. In this regard, the world’s largest crypto exchange Binance was at the center of the earthquake with liquidation worth nearly US$5 billion. As the price of bitcoin fell, many of these bets were automatically liquidated, putting further pressure on the price and leading to a vicious cycle of further liquidations. Many (especially inexperienced) crypto traders were wiped out without warning.Year to date gains sorted by market-cap. Source Messari, May 10th 2021.After a quick recovery back to US$56,000, bitcoin continued its correction and fell back to US$47,000 by April 25. Since then, it has managed a remarkable recovery, as the bitcoin bulls are trying hard to restart the uptrend. So far, this recovery has at least reached a high of US$59,600. Nevertheless, the price development of bitcoin remains rather tough until recently, while numerous altcoins and so called “shitcoins” experienced incredible price explosions in recent weeks.The exciting question now is whether the current recovery remains just a countermove within a larger correction or whether the turnaround has already been seen and Bitcoin is therefore on the way to new all-time highs?Technical Analysis For Bitcoin in US-DollarBitcoin, Weekly Chart as of May 13th, 2021. Source: Tradingview.On the weekly chart, bitcoin has been stuck at the broad resistance zone between US$58,000 and US$65,000 for the past two and a half months. At the same time, the bulls continue trying to break out of the uptrend channel which is in place since 14 months. However, the recent pullback has so far only begun to clear the overbought situation, if at all. A somewhat larger pullback or simply the continuation of the consolidation would certainly do the market good. On the downside, the support zone between US$41,000 and US$45,000 remains the predestined support zone in case the bears should actually show some more penetration. If, on the other hand, price rise above approx. US$61,000, the chances for a direct continuation to new all-time highs increases quite a lot.Weekly Chart with a fresh sell signalOverall, the big picture remains bullish and higher bitcoin prices remain very likely in the medium to longer term. However, since reaching US$ 58,000 for the first time at the end of February, bitcoin has been increasingly weakening in recent weeks. Another healthy pullback towards the support zone of US$41,000 to US$45,000 USD could recharge the bull´s batteries. With fresh powers a breakout to new all-time highs in the summer is likely. Obviously, a good buying opportunity cannot be derived from the weekly chart at the moment. Rather, the stochastic sell signal calls for patience and caution.Bitcoin, Daily Chart as of May 13th, 2021. Source: TradingviewOn the daily chart, bitcoin slipped out of a bearish wedge on April 14th and has been attempting a countermovement since the low at just under US$47,000. However, this recovery is somewhat tenacious and currently hangs on the upper edge of the uptrend channel. Given the overbought stochastic and the relatively large distance to the exponential 200-day moving average (US$41,694), another pullback has an increased probability. The liquidation wave on April 18th clearly showed how quickly the whole thing can slide, given the exuberant speculation with derivatives and leverage.Of course, the bulls (and thus rising prices) have always a clear advantage in a bull market. Also, in view of the huge monetary expansions, speculation on the short side is not recommended. One is better advised with regular partial profit-taking (without selling one’s core long positions completely) as well as a solid liquidity reserve, with which one can take advantage of the opportunities that arise in the event of more significant pullbacks. The blind “buy & hold” or “hodl” strategy has also proven its strengths and can rightfully be maintained given the bullish medium to longer-term outlook.Daily Chart now on a sell signalSummarizing the daily chart, bitcoin is so far “only” in a countermovement within the pullback that began on April 14th. Only with a breakout above approx. US$61,000 the bulls would clearly be gaining the upper hand again. In this case, a rally towards approx. US$69,000 USD becomes very possible. On the downside, however, bitcoin prices below US$53,000 would signal that the bears have successfully fended off the breakout above the upper edge of the uptrend channel in the short term. The next step would then be a continuation of the correction and thus lower prices in the direction of the support zone around US$44,000 as well as the rising exponential 200-day moving average.Sentiment Bitcoin – Caution, the crypto sector is getting a bit overheated in the short-termBitcoin Optix as of May 9th, 2021. Source: SentimentraderThe rather short-term “Bitcoin Optix” currently reports a balanced sentiment. What is striking is the fact that the last sentiment highs since February have always been weaker. I.e. the sentiment momentum is falling. At the same time, the temporary panic on April 25th brought an exaggeration to the downside (panic low = green circle), with which the ongoing recovery can be explained.Crypto Fear & Greed Index as of May 12th, 2021. Source: Crypto Fear & Greed Index The much more complex and rather long-term “Crypto Fear & Greed Index” currently indicates a slightly exaggerated optimism or “increased greed”.Crypto Fear & Greed Index as of May 12th, 2021. Source: SentimentraderIn the very long-term comparison, sentiment is somewhat overly optimistic.Overall, quantitative sentiment analysis is increasingly sending warning signals. In particular, the decreasing momentum of the sentiment peaks with simultaneously exploding altcoin prices must be taken seriously. Therefore, a contrarian entry opportunity is definitely not present in the crypto space. Instead, one is well advised to wait patiently for the next wave of panic or liquidation.Seasonality Bitcoin – Caution, the crypto sector is getting a bit overheated in the short-termBitcoin seasonality. Source: SeasonaxStatistically, the sideways spring phase for bitcoin ends at the beginning of May. This has often been followed by a sharp rally into June. However, this year bitcoin only reached an important high on April 14th and has been consolidating since then. Hence, the seasonal pattern doesn’t really match up with this year’s price action so far.In conclusion, the seasonality is basically changing from neutral to green these days. However, the course of the year has not been in line with the seasonal pattern. A continuation of the consolidation therefore seems more likely.Sound Money: Bitcoin vs. GoldBitcoin/Gold-Ratio as of May 10th, 2021. Source: TradingviewAt prices of US$58,075 for one bitcoin and US$1,835 for one troy ounce of gold, the bitcoin/gold-ratio is currently trading at around 31.7. This means that you currently have to pay almost 32 ounces of gold for one bitcoin. Put the other way around, one troy ounce of gold currently costs about 0.03 bitcoin. Thus, bitcoin has been running sideways against gold at a high level for a good month and a half.You want to own Bitcoin and gold!Generally, buying and selling Bitcoin against gold only makes sense to the extent that one balances the allocation in those two asset classes! At least 10% but better 25% of one’s total assets should be invested in precious metals physically, while in cryptos and especially in bitcoin one should hold at least between 1% and 5%. If you are very familiar with cryptocurrencies and bitcoin, you can certainly allocate much higher percentages to bitcoin on an individual basis. For the average investor, who is primarily invested in equities and real estate, 5% in the still highly speculative and highly volatile bitcoin is a good guideline!Overall, you want to own gold as well as bitcoin, since opposites complement each other. In our dualistic world of Yin and Yang, body and mind, up and down, warm and cold, we are bound by the necessary attraction of opposites. In this sense you can view gold and bitcoin as such a pair of strength. With the physical component of gold and the pristine digital features of bitcoin you have a complementary unit of a true safe haven for the 21st century. You want to own both! – Florian GrummesMacro Outlook and Crack-Up-BoomFED Balance Sheet. © Holger Zschaepitz via Twitter @Schuldensuehner, May 7th 2021.The U.S. Federal Reserve’s total assets continued to rise in recent weeks, reaching a new all-time high of USD 7,810 billion. The biggest increase was in holdings of U.S. Treasury securities, which rose by USD 25.66 billion to a total of USD 5,040 billion.ECB Balance Sheet. © Holger Zschaepitz via Twitter @Schuldensuehner, May 4th 2021.The ECB balance sheet also reached a new all-time high of EUR 7,568 billion. Driven by ultra-lax monetary policy (quantitative easing), total assets rose by a further EUR 9.7 billion. The ECB balance sheet is now equivalent to 76.2% of euro area GDP.Bloomberg Commodity Index. © Holger Zschaepitz via Twitter @Schuldensuehner, May 5th 2021.Due to these massive monetary expansions, the consequences of this irresponsible central bank policy are now slowly but surely becoming more and more apparent. For example, the Bloomberg Commodity Index has more than doubled since March 2020 and most recently rose to its highest level since 2011. Numerous commodities are reaching new highs, fueling inflation fears. The loss of confidence in fiat currencies typical of the crack-up boom is taking hold. This mass psychological phenomenon is gradually building up and may already be unstoppable. The accelerating crack-up boom is the ideal environment for precious metals, commodities and cryptocurrencies.Mentions of Inflation. © Holger Zschaepitz via Twitter @Schuldensuehner, May 5th 2021.Even Bank of America (BofA) recently acknowledged in a commentary that “inflation is here.” In doing so, they referenced the exploded number of mentions of “inflation.”Conclusion: Bitcoin – Caution, the crypto sector is getting a bit overheated in the short-termEthereum new all-time highs © Holger Zschaepitz via Twitter @Schuldensuehner, May 10, 2021.One of the main beneficiaries of the increasing flight out of the fiat systems in recent months has been cryptocurrencies. First and foremost, it was bitcoin which led the way up for the entire sector. Now, the second largest cryptocurrency by market capitalization, Ethereum, has risen to a new all-time high well above $4,300. Ethereum dominance reached a new record of 19%. Since the beginning of the year, Ethereum has thus gained nearly 500%.Bitcoin Dominance © Holger Zschaepitz via Twitter @Schuldensuehner, May 10, 2021.The market capitalization of the entire crypto sector did reach more than US$2.5 trillion. Mainly due to the price explosion in Ethereum and Altcoins during recent weeks, Bitcoin dominance had been fading down to below 44%.Ethereum Market Capitalization © Messari via Twitter @RyanWatkins_, May 10, 2021.With a Bitcoin dominance of below 40%, however, the air has always been very thin for altcoins in the past, and sharp pullbacks followed in 2017 and 2018. The speculative madness became particularly dramatic in the case of the fun and meme coin Dogecoin. This essentially worthless coin has been rising from US$0.005 to US$0.672 in just a few months, making it worth almost as much as the Daimler Group. Once again, the markets are thus providing an example of the extent to which the vast quantities of fiat currencies created out of thin air are distorting everything and fueling wild speculation.Be careful, be patient!Overall, it is imperative to advise caution in the current environment. While a long-term top in bitcoin is not yet in sight, a significant correction or sharp pullback should not come as a surprise and would be good for the overheated sector. The “worst case” envisages a pullback in the direction of around US$44,000. In this area, bitcoin would already be a buying opportunity again. In this scenario, the altcoins would temporarily but very likely take a severe beating. Subsequently, bitcoin could take the lead again and march on towards US$100,000 once this pullback is done. Alternatively, the tenacious sideways consolidation continues until bitcoin prices above US$61,000 confirm the continuation of the rally to new all-time highs.Analysis sponsored and initially published on May 10th, 2021, by www.celticgold.eu. Translated into English and partially updated on May 13th, 2021.Feel free to join us in our free Telegram channel for daily real time data and a great community.If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can subscribe to our free newsletter.By Florian Grummes|May 13th, 2021|Tags: Bitcoin, Bitcoin correction, bitcoin crashing, Bitcoin dominance, Bitcoin Sentiment, bitcoin/gold-ratio, crypto analysis, cryptocurrency, Dogecoin, Ethereum, Ethereum correction, Gold, technical analysis|0 CommentsAbout the Author: Florian GrummesFlorian Grummes is an independent financial analyst, advisor, consultant, trader & investor as well as an international speaker with more than 20 years of experience in financial markets. He is specialized in precious metals, cryptocurrencies and technical analysis. He is publishing weekly gold, silver & cryptocurrency analysis for his numerous international readers. He is also running a large telegram Channel and a Crypto Signal Service. Florian is well known for combining technical, fundamental and sentiment analysis into one accurate conclusion about the markets. Since April 2019 he is chief editor of the cashkurs-gold newsletter focusing on gold and silver mining stocks. Besides all that, Florian is a music producer and composer. Since more than 25 years he has been professionally creating, writing & producing more than 300 songs. He is also running is own record label Cryon Music & Art Productions. His artist name is Florzinho.Florian GrummesPrecious metal and crypto expertwww.midastouch-consulting.comFree newsletterSource: www.celticgold.eu
Gold Approaches $1,900 amid FOMC Minutes and Crypto Sell-Off

Gold Approaches $1,900 amid FOMC Minutes and Crypto Sell-Off

Finance Press Release Finance Press Release 20.05.2021 16:31
The latest FOMC minutes were dovish, especially in light of the recent increase in inflation and elevated asset valuations. What does it mean for gold?Yesterday, the FOMC published minutes from its last meeting in April . They’ve shown two things doing that: first, that some of the central bankers are worried about the inflation and elevated asset valuations; and, second, that the Fed is going to remain dovish despite all these concerns .Indeed, some FOMC participants noted that the demand for labor had started to put some upward pressure on wages. Moreover, a number of them pointed out the protracted supply disruptions and the insufficient pre-emptive hawkish reaction from the Fed as potentially inflationary factors:A number of participants remarked that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year. They noted that in some industries, supply chain disruptions appeared to be more persistent than originally anticipated and reportedly had led to higher input costs. (…)A couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.When it comes to financial stability and asset valuations, several FOMC members pointed out elevated risk appetite and very low credit spreads . And certain participants noted dangers related to the low interest rates and excessive risk-taking: if the risk appetite fades, the asset prices could decline with potentially harmful consequences for the financial sector and the economy:Regarding asset valuations, several participants noted that risk appetite in capital markets was elevated, as equity valuations had risen further, IPO activity remained high, and risk spreads on corporate bonds were at the bottom of their historical distribution. A couple of participants remarked that, should investor risk appetite fall, an associated drop in asset prices coupled with high business and financial leverage could have adverse implications for the real economy. A number of participants commented on valuation pressures being somewhat elevated in the housing market. Some participants mentioned the potential risks to the financial system stemming from the activities of hedge funds and other leveraged investors, commenting on the limited visibility into the activities of these entities or on the prudential risk-management practices of dealers’ prime-brokerage businesses. Some participants highlighted potential vulnerabilities in other parts of the financial system, including run-prone investment funds in short-term funding and credit markets. Various participants commented on the prolonged period of low interest rates and highly accommodative financial market conditions and the possibility for these conditions to lead to reach-for-yield behavior that could raise financial stability risks.So, given all these concerns about financial stability and higher inflation, the Fed should send some hawkish signals, right? Not at all! On the contrary, the US central bank reiterated its ultra-dovish stance, justifying that the economy was far from achieving full employment.Participants commented on the continued improvement in labor market conditions in recent months. Job gains in the March employment report were strong, and the unemployment rate fell to 6.0 percent. Even so, participants judged that the economy was far from achieving the Committee's broad-based and inclusive maximum-employment goal. Payroll employment was 8.4 million jobs below its pre-pandemic level. Some participants noted that the labor market recovery continued to be uneven across demographic and income groups and across sectors.After all, higher inflation would only be transitory, and when these short-term factors fade, inflation will decrease:In their comments about inflation, participants anticipated that inflation as measured by the 12-month change of the PCE price index would move above 2 percent in the near term as very low readings from early in the pandemic fall out of the calculation. In addition, increases in oil prices were expected to pass through to consumer energy prices. Participants also noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent. After the transitory effects of these factors fade, participants generally expected measured inflation to ease. Looking further ahead, participants expected inflation to be at levels consistent with achieving the Committee's objectives over time (…) Despite the expected short-run fluctuations in measured inflation, many participants commented that various measures of longer-term inflation expectations remained well anchored at levels broadly consistent with achieving the Committee's longer-run goals.Yeah, sure, but why should we believe the Fed if they were surprised by the CPI readings in April? They anticipated inflation moving above 2 percent, and meanwhile the CPI inflation surged above 4 percent as the chart below shows!But at least inflation expectations remain well-anchored, don’t they? Well, not exactly . As the chart below shows, the market-based expectations of inflation have significantly risen recently. Similarly, the University of Michigan’s index that measures inflation expectations for the next five years rose from 2.7 percent in April to 3.1 percent in May – it’s the highest level in a decade.Interestingly, even the Fed staff doesn’t believe in transitory inflation. After all, they forecast that the actual GDP would be above its potential until 2022-2023:With the boost to growth from continued reductions in social distancing assumed to fade after 2021, GDP growth was expected to step down in 2022 and 2023. However, with monetary policy assumed to remain highly accommodative, the staff continued to anticipate that real GDP growth would outpace that of potential over much of this period, leading to a decline in the unemployment rate to historically low levels.Economics 101 teaches us that when the economy operates above its potential, it implies overheating and inflation that reflects more fundamental or lasting factors than base effects and short-term supply disruptions.Implications for GoldWhat do the recent FOMC minutes imply for gold? Well, the Fed remaining dovish despite all the inflationary risks and elevated asset valuations (many assets plunged yesterday, especially cryptocurrencies) is bullish for gold .Sure, a few members became ready to start talking about tapering the quantitative easing and tightening the monetary policy :A number of participants suggested that if the economy continued to make rapid progress toward the (policy-setting) Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.However, “a number” is not “the majority”, so we shouldn’t expect such a discussion in the mainstream anytime soon, especially in light of the disappointing April nonfarm payrolls and recent declines in the stock market.The price of gold rose yesterday, approaching $1,900. It might have been due to the FOMC minutes, but also the sell-off in cryptocurrencies and the following outflow of money from them into old, good gold.Given these shifts in the marketplace, it seems that Fed’s worries about fading risk appetite were justified. If risk appetite wanes further, gold should shine as a safe-haven asset .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Rising Cost Pressure - What Will Mr. Powell and Mr. Gold Do?

Rising Cost Pressure - What Will Mr. Powell and Mr. Gold Do?

Finance Press Release Finance Press Release 25.05.2021 15:53
The latest IHS Markit Flash U.S. Composite PMI signals very fast economic expansion – but also strong inflationary pressure. Good news for gold, overall.On Friday, the recent IHS Markit Flash U.S. Composite PMI has been published . There are two pieces of news for gold - one good and one bad. Let’s start with the negative information. The report signals an unprecedentedly fast expansion in business activity in May . Indeed, the composite index surge from 63.5 in April to 68.1 this month established a new record.More importantly, both manufacturing and services sectors’ markets have shown strong growth. The former index rose from 60.5 in April to 61.5 in May (also a new record), while the PMI for services soared from 64.7 to 70.1, marking the sharpest jump since data collection for the series began in October 2009. Such an unprecedentedly fast acceleration of growth in the PMI signals strong economic growth, which is clearly bad news for the safe-havens such as gold (however, strong economic growth is something everyone expected, so it might be already priced in as well).The good information is, however, that at least part of this growth is inflationary , as soaring demand greatly improved the firm’s pricing power. And the input costs have surged, leading to the sharpest rise in output charges since the end of the Great Recession when the data collection started:Increasing cost burdens continued to be keenly felt, as the rate of input price inflation soared to a new survey record high, often linked to a further marked worsening of supplier performance. Commonly noted were increases in PPE, fuel, metals and freight costs amid significant supplier delays.The steep rise in costs fed through to the sharpest increase in output charges since data collection began in October 2009, with record rates of inflation registered for both goods and services as soaring demand boosted firms’ pricing power.What’s more, wage inflation is also coming , as the report says that entrepreneurs couldn’t find people to fill the vacancies. It seems that generous benefits introduced in a response to the recession discouraged people from searching for work, and slack in the labor market is greatly exaggerated.Although a solid expansion in staffing levels eased some pressure on backlogs in the service sector, manufacturers registered the fastest rise in work-in-hand on record amid raw material shortages. While job creation was again seen in the goods-producing sector, the rise was the slowest for five months, linked in part to difficulties filling vacancies.In other words, the post-pandemic natural employment will be simply lower because of the institutional changes, not because of weak aggregate demand. How would you explain otherwise the fact that entrepreneurs cannot find workers amid employment lower by 8 million when compared to the pre-pandemic level?But this is good news for gold. The subdued employment would be a great excuse for the Fed to say that there is slack in the labor market, the aggregate demand is weak, and the economy remains fragile and below the Fed’s targets, so it still needs easy monetary conditions. Hence, Powell would stay passive and would even avoid starting to think about tapering the quantitative easing and hiking interest rates . Dovish Fed and rising prices would support gold prices.So, high inflation (see the chart below) should remain with us for a while . Indeed, manufacturers worry that raw material shortages “could extend through 2021” and producer price inflation translates into consumer price inflation with a certain lag. Anyway, high inflation won’t disappear in one or two months, but it could last for at least a few or even several months if the Fed remains ultra- dovish and people lose confidence in the central bank’s ability to maintain price stability.If this scenario happens, inflation expectations could cease to be “well-anchored” and inflation could get out of control, just as it did during stagflation in the 1970s. Chris Williamson, Chief Business Economist at IHS Markit, seems to agree with me in his comment on the report:The May survey also brings further concerns in relation to inflation, however, as the growth surge continued to result in ever-higher prices. Average selling prices for goods and services are both rising at unprecedented rates, which will feed through to higher consumer inflation in coming months.Implications for GoldWhat does the recent IHS Markit Flash U.S. Composite PMI imply for gold? Well, strong economic activity is bad for gold, given that it usually shines during bad times. However, the yellow metal doesn’t like genuine, real growth, but it performs pretty well during inflationary periods . Of course, part of the growth comes from the reopening of the economies, but there is no doubt that this expansion is accompanied by high inflation.I’ve been warning readers since the very early part of the pandemic that the following expansion will be more inflationary than the previous one. This is excellent news for gold, which entered a bear market in 2011-2013 (i.e., when the former expansion settled down). What’s important here is that the economic environment is more inflationary (we have easier monetary and fiscal policies ) while at the same time the Fed is highly tolerant of high inflation – this is a truly dangerous cocktail, but it could be quite tasty for gold.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Surpasses $1,900. What’s Next?

Gold Surpasses $1,900. What’s Next?

Finance Press Release Finance Press Release 27.05.2021 16:45
Gold surpassed $1,900 most recently – and it’s likely that the rally will continue for a while.Gold bulls have an opportunity to celebrate. As the chart below shows, the price of gold has been rising recently. And yesterday (May 26) it finally jumped above $1,900, which is an important psychological level.The question we should ask now is “what’s next?” Well, as the jokes go on, the price of gold will either go up or down. But in earnest, there are significant downside risks for the yellow metal. First of all, the Fed could overreact to rising inflation and increase real interest rates .However, these worries seem to be overblown. The Fed’s monetary policy is always asymmetrical, i.e., it eases its stance in response to recession more than it tightens it in response to inflation. The federal funds rate gets lower and stays at these low levels for longer, partially because of all the enormous indebtedness of the contemporary economy.The tapering is surely the risk that looms on the horizon. But the Fed will maintain its quantitative easing and zero-interest-rate policy for at least the rest of 2021. So, there is still room for gold to move further north , especially after the recent turmoil in the cryptocurrency market resulting in renewed confidence in gold as an attractive inflation hedge .After all, the US monetary policy is loose, and real interest rates are still in negative territory. The fiscal policy remains very easy, and the public debt is high. Inflation is huge and rising. And there is also an issue of depreciation of the greenback . The Fed’s easy stance, low interest rates and high inflation weaken the US dollar, supporting gold prices.Last but not least, the level of risk appetite/confidence in the Fed and the economy has already reached its peak, as the GDP has recovered with an unprecedentedly high pace of growth. In other words, the post- pandemic euphoria is behind us – now the harsh, inflationary reality sets in. Maybe we won’t repeat the 1970s stagflation , but inflation is probably more deeply embedded than the Fed thinks. And it seems that the markets are finally getting this idea, pushing some investors into gold’s warm and shiny embrace .Implications for GoldWhat does it all mean for gold prices? Well, recently two broad trends have dominated the markets: rising inflation expectations and rising economic confidence. In other words, market participants expected reflation . However, economic confidence has peaked, and now investors focus more on inflation. So, we are moving slowly from the reflation phase to the inflationary phase, which is beneficial for gold – if this trend continues, the yellow metal could continue its upward march.Every investor should remember one great historical pattern, basically as old as the Roman Empire. The money supply is first aggressively boosted with the excuse that “there is no inflation”. When upward pressure on prices becomes clear, that excuse transforms into “inflation is transitory” or into “the rise in inflation is caused by idiosyncratic factors”. Have you heard about Arthur Burns, the Fed Chair in the 1970s and the predecessor of Paul Volcker ? As Stephen Roach notes on him:Over the next few years, he [Burns] periodically uncovered similar idiosyncratic developments affecting the prices of mobile homes, used cars, children’s toys, even women’s jewelry (gold mania, he dubbed it); he also raised questions about homeownership costs, which accounted for another 16% of the CPI. Take them all out, he insisted!Finally, the officials admit that there is inflation, but they blame it on speculators and other external, unfavorable or even hostile factors. To be clear, I’m not predicting hyperinflation or even double-digit inflation in the US, but recent economic reports suggest that upward price pressure could be more lasting than the Fed and the pundits believe.So, inflation could remain elevated for a while , especially given that the description of Burns downplaying it is worryingly similar to the current Fed’s stance under Powell . As Stephen Roach points out, the current size of fiscal and monetary stimuli is unprecedented, especially taking into account the pace of the recovery:Today, the federal funds rate is currently more than 2.5 percentage points below the inflation rate. Now, add open-ended quantitative easing – some $120 billion per month injected into frothy financial markets – and the largest fiscal stimulus in post-World War II history. All of this is occurring precisely when a post-pandemic boom is absorbing slack capacity at an unprecedented rate. This policy gambit is in a league of its own.Indeed, but gold loves chess, gambits included. After all, chess is a royal game, while gold is a royal metal!If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Seems Stuck at $1900. Are Inflationary Fears Exaggerated?

Gold Seems Stuck at $1900. Are Inflationary Fears Exaggerated?

Finance Press Release Finance Press Release 03.06.2021 14:06
Gold is fluctuating around $1,900 amid a sideways trend in real interest rates and a decline in inflationary expectations.Gold surpassed $1,900 at the end of May. However, it has been struggling since then to rally decisively above this level. Instead, the price of the yellow metal has been oscillating around this level, as the chart below shows.Why is that and what does it mean for the gold market? Well, on the one hand, we could say that the yellow metal is in a normal pause during an uptrend. However, the lack of more aggressive price appreciation amid high inflation , ultra-loose monetary policy , depreciating dollar and super easy fiscal policy could be seen as disturbing.From a fundamental perspective, the timid price behavior of gold could be explained by a sideways trend in real interest rates . Their lackluster movement, in turn, could have resulted from the downward correction in long-term inflationary expectations (blue line), as the chart below shows.Investors’ inflation bets have lost some steam, starting a debate about whether expectations of inflation have already peaked. After all, it might be the case that inflation fears have been exaggerated and investors have overshot, as they often do. In addition, some of the FOMC members signaled that it could be a good idea to begin discussing tapering quantitative easing .If this was really the peak of inflationary expectations, the news would be bad for gold, which is seen as a hedge against inflation . However, many analysts expect that inflation expectations have room for further rises and could reach levels close to 3%.Implications for GoldWhat does all this mean for the price of gold? Well, market-based inflationary expectations have recently declined, dragging the real interest down and restraining gold from moving upward. However, inflation worries won’t disappear anytime soon . After all, the PCE inflation , the favorite Fed’s inflation gauge, jumped 3.1% in April, beating the expectations. Even in the Eurozone, where price pressure is usually lower than in the US, the inflation rate rose from 1.6% to 2% in May, which is the highest level since October 2018.Furthermore, consumer-based inflationary expectations jumped from 3.4% to 4.6% in May, so inflation worries are still around. They could increase the uncertainty and increase the safe-haven demand for gold . Although higher uncertainty could limit some spending, we should remember that households have accumulated more than $2 trillion in excess savings during the pandemic . So, inflation may be more lasting than many policymakers and pundits believe . If inflation doesn’t turn out to be merely transitory, gold could gain some fuel for the upward march.Higher inflation implies weakened purchasing power of the dollar. If we add America’s growing public debt problem to constantly rising prices, the downward trend in the greenback could continue, supporting the price of gold.Of course, only time will tell whether or not current inflation worries are justified. However, please note that the economy didn’t collapse last year due to a lack of liquidity but due to the Great Lockdown . The implication is that the Fed has increased money supply well above demand , injecting a lot of liquidity into the system. The expansion in the Fed’s balance sheet and commercial banks’ credit (after all, this time not only the monetary base has jumped, but the broad money supply as well), combined with the Great Unlocking, generated a great inflationary wave that lifted all asset classes: from commodities, through equities, to cryptocurrencies , including crypto-memes like Dogecoin.And it might be just a coincidence, but the Fed introduced a new monetary regime that is prone to higher inflation also during the last year. A cynical interpretation could be that the Fed knew very well that its last year’s monetary expansion could result in higher inflation.Hence, inflationary expectations didn’t have to peak, and they could increase later this year supporting gold prices . Having said that, if inflation really turns out to be only transitory, the current situation wouldn’t be much different from 2011-2013, when gold prices struggled amid expectations of monetary policy tightening . Of course, the Fed is even more dovish now under Powell than under Bernanke or Yellen , but higher inflation would be an additional argument for a bull market in gold .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
US Government Stimulus Went Wrong. How Will Gold React?

US Government Stimulus Went Wrong. How Will Gold React?

Finance Press Release Finance Press Release 08.06.2021 19:18
Gold may benefit from government money flooding households and people less willing to work – as evidenced by the low value of nonfarm payrolls.According to the recent BLS Employment Situation Report , total nonfarm payrolls rose by 559,000 in May, following disappointing increases of 278,000 in April, as the chart below shows. What is disturbing here is that this time the US economy also added significantly fewer jobs than expected – economists surveyed by MarketWatch forecasted 671,000 additions. Moreover, labor force participation and employment-population rates were little changed, remaining significantly below the pre-pandemic levels.On the positive side, the unemployment rate edged down from 6.1% to 5.8%, as the chart above shows. However, even though the number of unemployed people fell considerably from its recent high in April 2020, it remains well above the level seen before the Covid-19 epidemic. In February 2020, 5.7 million Americans were without a job, while now it is 9.3 million. It means that the labor market is still far from recovery . Or, actually, given all the generous unemployment benefit supplements introduced during the pandemic, the new equilibrium unemployment rate may be simply higher than in the past.Implications for GoldAnyway, the new employment situation report is positive for the gold market . May nonfarm payrolls report is disappointingly weak and missed expectations for the second month in a row. It means that the April report wasn’t just an accident, and the US labor market has to face some serious problems.The sad truth is that Americans don’t want to work. Even the decline in the unemployment rate was caused to a large extent by the drop in the labor participation rate, as workers just left the labor market. This fact explains why employers report worker shortages despite an army of a few million unemployed people. According to the recent Fed’s Beige Book , many companies have difficulties finding new employees, so they had to boost their wages to attract candidates:It remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople (…) A growing number of firms offered signing bonuses and increased starting wages to attract and retain workers.Even the BLS admitted that “rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages”. Indeed, wage increases accelerated to 2% in May year-over-year, up from just 0.4% in the previous month. They could add to the inflationary pressure or reduce companies’ margins and investments, reducing the pace of real economic growth. So, the jump in wages seems to be good for gold . Hence, the yellow metal could continue its long-term upward trend after the recent pullback below $1,900 (see the chart below).Additionally, disappointing employment situation news will postpone tapering of the Fed’s quantitative easing . The weak nonfarm payrolls report gives a strong hand to the doves within the FOMC who don’t want to even start talking about talking about tapering. Hence, the US monetary policy should remain very dovish , with the real interest rates at ultra-low levels supporting gold prices . Indeed, the expected path of the federal funds rate , derived from the Fed Fund futures , has declined from the prior levels.In other words, although May nonfarm payrolls report is an improvement when compared to April, the level of employment is still 7.6 million below its pre-pandemic peak. So, even if we see further improvement later this year (which is likely, as many states end the unemployment benefit supplements this month), it will take several more months to fully eliminate the slack in the labor market. The implication is clear: precious metals investors shouldn’t bet on a change in the Fed’s stance anytime soon. And as the yellow metal is very sensitive to tapering fears, this is positive news for gold bulls.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Will Gold Rally Continue in the Upcoming Months?

Will Gold Rally Continue in the Upcoming Months?

Finance Press Release Finance Press Release 10.06.2021 15:25
May was certainly a positive month for the yellow metal. Gold could keep its momentum later this year, but a lot depends on the Fed and inflation.We left May in the rearview mirror, and as the chart below shows, it was the second positive month in a row for the yellow metal. Gold rose 7% last month – this is 12.3% since the local bottom on March 31, 2021 . The jump was driven mainly by inflation fears, a weak greenback and a decrease in real interest rates .Hence, I was right: the second quarter has been so far much better for the shiny metal than the first one, in which it declined by 11%. Gold even jumped temporarily above $1,900 at the turn of May and June. Since then, it has been fluctuating around this level. All this means that the yellow metal fully recovered its Q1 losses, finishing last month virtually flat year-to-date.Now, the key question is: what’s next for gold? Outlooks are, as always, divided. Some analysts point out that gold’s struggle to move decisively north above $1,900 amid all the increase in the money supply , public debt and inflation is disturbing and has bearish implications for the future. For instance, the French bank Société Générale still believes that we will see $2,000 per ounce by the end of the year, but its conviction towards this forecast has weakened. I have to admit – the lack of a stronger rally in gold is something I also worry about.But on the other hand, some believe that gold is still in a long-term bull trend . For instance, the World Gold Council , in its latest Gold Market Commentary , points out that sentiment towards gold became more bullish in May , as net positioning on COMEX futures rose to its highest level since February. Moreover, not only gold ETFs recorded their first monthly inflows since January 2021, but also the highest ones since September 2020.Furthermore , the WGC’s 2021 Central Bank Gold Reserves Survey reveals a slightly stronger conviction towards gold , as there is a growing recognition among central banks of gold’s performance during periods of economic crises . The report notes that 21% of central banks expect to increase their gold reserves within the next year (value relatively unchanged from last year’s survey) and that no central bank expects to sell gold this year – down from 4% in 2020.Also, Commerzbank remains bullish on gold despite recent volatility . Although the German bank expects that the Fed will start tapering its quantitative easing by the fourth quarter, it’s forecasting rising inflation. As a result, nominal interest rates will stay below the inflation rate leaving real bond yields significantly below zero.Implications for GoldWhat does all this imply for the gold market? Well, there are both downside and upside risks for gold in the future . Possible drawbacks are the unwinding of the Fed’s bond-buying program and the new tightening cycle . Strengthening expectations of asset purchases tapering and normalization of the ultra-dovish monetary policy could trigger an increase in the interest rates and outflows from the gold market.To the other group of factors, I would include higher inflation. After all, we have never seen such coexistence of dovish monetary policy and easy fiscal policy . Not surprisingly, investors started to worry about record-breaking inflation. As the chart below shows, market-based probabilities derived from options (calculated by the Minneapolis Fed , which computes probabilities from option prices) show that the previous expectations of the CPI annual rate above 3% over five years have significantly increased recently. Higher inflation would increase demand for gold as an inflation hedge and decrease real interest rates, supporting gold prices.So, gold’s future depends on the Fed’s reaction to rising inflation , or whether or not investors will focus on nominal and real interest rates. If the US central bank stays behind the inflation curve, real interest rates will stay in the negative territory, supporting the price of gold. However, if the Fed tightens its monetary policy decisively, or if investors focus on rising nominal bond yields in a response to inflation, the yellow metal may go down.To that point, the most recent changes in the Fed’s framework, comments from the FOMC members and disappointing data about the US labor market suggest that we are far away from any serious tightening. So, gold has room for moving higher.Having said that, it seems that gold needs more negative events (or even a kind of financial crisis ) to rally decisively further . So far, the US economy remains in the boom phase and higher inflation doesn’t seem to significantly disrupt the functioning of the markets. Perhaps gold bulls will have to wait a bit longer until we move from reflation to stagflation . Today’s report on inflation and upcoming FOMC meeting could provide more clues about gold’s future – stay tuned!If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Inflation Soars 5%! Will Gold Skyrocket?

Inflation Soars 5%! Will Gold Skyrocket?

Finance Press Release Finance Press Release 15.06.2021 15:56
With the CPI annual inflation rate spiking 5% in May, gold could have gained a lot in response. However, it rallied only $20. Should we prepare for more?Whoa! Inflation soared 5% in May – quite a lot for a nonexistent (or transitory) phenomenon! But let’s start from the beginning. The CPI rose 0.6% in May, after increasing 0.8% in April. Meanwhile, the core CPI, which excludes food and energy, soared 0.7%, following a 0.9% jump in April. So, given that the pace of the monthly inflation rate decelerated, we shouldn’t worry about inflation, right? Well… we should.First of all, inflation was higher than expected , as the consensus forecast was a 0.4% increase. Inflation surprised pundits once again, but not me. Last month, I wrote in the Fundamental Gold Report that “Inflation escalated in April. In May, however, inflation could be softer, but it will remain relatively elevated, in my view” – and this is exactly what happened. However, the unexpected rise in inflation is positive news for gold, as such a surprise should decrease the real interest rates .Second, pundits cannot blame energy prices for this jump, as the energy index was flat. Apart from energy and medical care services, which decreased slightly, all index components increased last month. In particular, the index for used cars and trucks soared again (7.3%). Also, the indexes for new vehicles and apparel surged in May, which shows that inflationary pressure is broad-based .Last but definitely not least, the latest BLS report on inflation reveals that the overall CPI skyrocketed 5% for the 12 months ending May (before seasonal adjustment), followed by a 4.2% spike in April. For context, the annual inflation rate has been trending up every month since January, when the 12-month change was just 1.4%. Therefore, we’ve just seen the largest move since a 5.4% jump for the period ending in August 2008 , just one month before the bankruptcy of Lehman Brothers that triggered the global financial crisis and deflationary Great Recession .But that’s not all! The annual core CPI rate soared 3.8% last month after rising 3% in April, as the chart below shows. It was the fastest pace since June 1992. So, the Fed cannot by any manner of means blame higher inflation on food or energy prices.Supply disruptions are not a credible explanation either, as the inflation acceleration is broad-based. How likely would it be, that the production of virtually all goods and services would face supply bottlenecks at the same time and extent? Indeed, a significant boost in the broad money supply is a much more convenient explanation for widespread price increases.Implications for GoldWhat does accelerating inflation imply for the gold market? Well, on the one hand, higher inflation should be positive for the yellow metal , as it means a stronger demand for gold as an inflation hedge . Additionally, higher inflation could lower the real interest rates, also supporting gold prices. And indeed, the price of gold has risen from about $1,870 to $1,890 in a response to the inflation spike.On the other hand, some analysts point out that stronger inflation could be rather negative for the yellow metal , as the Fed would have to tighten its monetary policy , taper its quantitative easing and hike the federal funds rate to contain inflation. After all, the overall CPI annual rate is more than twice as high as the Fed’s target. Moreover, the mediocre gold’s reaction to the surge in inflation suggests that investors are worried about a normalization of the ultra-dovish monetary policy .However, the Fed has recently become more tolerant of higher inflation, and Powell is likely to continue claiming that inflation is merely transitory. Also, on Thursday, the European Central Bank held its regular monetary policy meeting and maintained its elevated flow of stimulus, even though recovery takes hold. And the Fed may do the same, i.e., nothing, tomorrow.Nevertheless, the relaxed stance of the ECB and the Fed could come out as incorrect. We have the economy operating above potential, with big fiscal injections along with a very easy monetary policy. Such a combination could bring us to an environment of higher and more lasting inflation, which could disrupt the market later in the future.After all, many indicators suggest that financial markets believe in the narrative of “transitory” inflation. But if inflation proves to be more permanent than expected, there could be some turmoil in the markets – and gold could benefit from it. Gold is not always a good inflation hedge, and it could suffer somewhat if the nominal interest rates increase; however, it should prosper if the real interest rates decline further.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Will Gold Survive Hawkish Fed?

Will Gold Survive Hawkish Fed?

Finance Press Release Finance Press Release 22.06.2021 15:58
The recent Fed’s hawkish turn is fundamentally negative for gold prices but there is still some hope.The hawkish counter-revolution within the Fed continues. On Friday, St. Louis Fed President James Bullard said that the recent FOMC shift towards a faster tightening of monetary policy was a natural response to faster economic growth and higher inflation than anticipated:We were expecting a good year, a good reopening, but this is a bigger year than we were expecting, more inflation than we were expecting, and I think it's natural that we've tilted a little bit more hawkish here to contain inflationary pressures.Bullard also noted that “Powell officially opened the taper discussion this week”. Indeed, in my Friday edition of the Fundamental Gold Report , I focused on the changed dot-plot , which suggested that FOMC members were ready to hike interest rates twice in 2023. However, the second major shift in the stance of the US central bank was that the Fed officials started to “talk about talking about” tapering.In his prepared remarks for the press conference, Powell said:At our meeting that concluded earlier today, the Committee had a discussion on the progress made toward our goals since the Committee adopted its asset purchase guidance last December. While reaching the standard of “substantial further progress” is still a way off, participants expect that progress will continue. In coming meetings, the Committee will continue to assess the economy’s progress toward our goals. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.In plain English, it means that the Fed could announce tapering at any of its future meetings, depending on the assessment of the incoming data. However, to avoid a replay of the taper tantrum , the Fed will “give advance notice before announcing any decision”. So, September is the first probable date of a hawkish announcement about tapering of quantitative easing , which could be preceded by some clues as early as in July:That is, you know, the process that we're beginning now at the next meeting. We will begin, meeting by meeting, to assess that progress and talk about what we think we're seeing, and just do all of the things that you do to sort of clarify your thinking around the process of deciding whether and how to adjust the pace and composition of asset purchases.Another hawkish shift in the Fed’s thinking, which is worth pointing out, is that it dropped the phrase in the statement saying that the pandemic is weighing on the economy. So, although it’s still cited as a risk, Powell and his colleagues officially ceased to see the pandemic as a constraint on economic activity. It means that, as I already wrote earlier in my reports, the US economy has returned to the pre- epidemic level or has shifted from the recovery to the expansion phase.Implications for GoldWhat does it all mean for the yellow metal? Well, the Fed triggered some panic selling in the gold market last week. Actually, on Thursday, there was the largest one-drop of 2021 in response to the more hawkish stance of the US central bank, as the chart below shows.The bearish reaction is understandable, as the Fed’s readiness to reduce its asset purchases and end the policy of zero interest rates is fundamentally negative for the yellow metal . More hawkish FOMC implies higher real interest rates and a stronger dollar, the two most important drivers of gold prices. Furthermore, when the US central bank becomes more hawkish, it means that it’s more confident in the economy – and gold struggles when the economy is strong.However, some analysts claim that the selloff was exaggerated . After all, the Fed still maintains that higher inflation is transitory; but transitory inflation doesn’t mix with earlier interest rate hikes. So, we will have either more lasting high inflation (but the Fed is slow to admit it), or the Fed doesn’t really want to increase its interest rates substantially. In both cases, gold should benefit, either from higher inflation and lower real interest rates, or from more dovish Fed than it’s currently perceived.So, the bullish case for gold is not dead yet, but if the Fed really becomes more hawkish and determined to tighten its monetary policy (while high inflation turns out to be transitory), gold may struggle during the upcoming tightening cycle , unless it triggers some economic turmoil.If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Suffered in June - Will It Rebound in 2021?

Gold Suffered in June - Will It Rebound in 2021?

Finance Press Release Finance Press Release 01.07.2021 15:29
June was a terrible month for gold. Without a fresh crisis or a strong dovish signal from the Fed, gold may continue its disappointing performance.June wasn’t too kind to gold. As the chart below shows, the yellow metal plunged more 7.2% in the last month , the biggest monthly decline since November 2016. In consequence of the June rout, the whole first half of this year was awful for gold, which lost 6.6% in that period, the worst performance since H1 2013.The dive was a result of the latest Fed’s dot-plot published in the aftermath of the June FOMC meeting which showed that the US central bankers could want to hike the federal funds rate earlier than previously thought . Although the dot-plot is not a reliable forecast of what the Fed will do, and a quarter-point hike in the interest rates in two years from now isn’t particularly hawkish , the change was sufficient to alter the crowd psychology. As a result, the market narrative has shifted from “the Fed will tolerate higher inflation, staying behind the curve” to “the Fed won’t allow inflation to run wild and will hike earlier because of the stronger inflationary pressure”.The subsequent comments from the Fed officials helped to consolidate the new narrative . For example, only this week Thomas Barkin, Richmond Fed President, noted that the US central bank has made “substantial further progress” toward its inflation goal in order to begin tapering quantitative easing . Meanwhile, Fed Governor Christopher Waller stated that the Fed could begin tapering as soon as this year to have an option of hiking interest rates by late next year. Robert Kaplan, Dallas Fed President, went even further, saying that he “would prefer [a] sooner” start of reducing the pace of Fed’s asset purchases than the end of the year.The hawkish U-turn among the Fed led to higher nominal bond yields , real interest rates , and a stronger US dollar , which also contributed to gold’s weakness. Meanwhile, inflation expectations reversed in June after a peak in May, which increased the real yields and also hit gold prices.Implications for GoldWhat do the changes in the Fed’s stance on the monetary policy and the market’s new narrative imply for gold? Well, the hawkish revolution is fundamentally negative for the yellow metal . Investors are now less worried about higher inflation , as they believe that the Fed will tighten its monetary policy sooner than previously thought. Such expectations boost the market interest rates, making the dollar more attractive compared to its major peers, while non-interest-bearing assets such as gold become less alluring.However, this narrative, like all narratives, may quickly change. If we see more disappointing economic data coming, the Fed could return to its previous dovish stance . Also, if high inflation turns out to be more persistent or disruptive than expected, the demand for inflation hedges or safe-haven assets such as gold may increase again.Furthermore, if inflation turns out to be merely transitory, as the Fed and the pundits believe, the US central bank will remain behind the curve, and gold may survive . Or, the Fed will have to lift the interest rates aggressively, increasing the risk of recession .What is important here, the yield curve has already flattened. It is still high and far from the negative territory, but the peak is behind us. Thus, gold will suffer initially because of the hawkish Fed only to rebound later during the next economic crisis . But well, it seems that gold indeed needs a new catalyst to rally , and without any crises or dovish signals sent by the Fed, it will struggle .If you enjoyed today’s free gold report , we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today . If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Will Fed Hawks Peck Gold?

Will Fed Hawks Peck Gold?

Finance Press Release Finance Press Release 02.07.2021 17:13
Although gold doesn’t have to suffer during the actual tightening cycle, the Fed’s hawkish turn is fundamentally negative for gold prices.Oh no, my worst nightmare related to the precious metals has materialized. In the June edition of the Gold Market Overview, I wrote:Of course, gold is not a perfect inflation hedge in the short term. If the interest rates increase or the Fed tightens the monetary conditions in response to inflation, gold may struggle. Actually, the start of normalization of the monetary policy could push gold downward, just as it happened in 2011.And indeed, the Fed turned hawkish in June . The FOMC members started talking about tapering quantitative easing , and at the same time the recent dot-plot revealed great willingness among them to hike interest rates . And, in line with the prediction, gold prices plunged in response to the Fed’s hawkish signals about possible normalization of the monetary policy . As the chart below shows, the London (P.M. Fix) price of gold declined from $1,895 to $1,763 in June.Now, the key question is: what’s next for gold? Was the June slide just a correction? An exaggerated reaction to the not-so-meaningful economic projections of the FOMC members? After all, “they do not represent a Committee decision” and they “are not a great forecaster of future rate moves”, as Powell reminded in the prepared remarks for his press conference in June.But maybe it's the other way around? Did the Fed’s about-face mark the end of the bull market in gold ? Are we witnessing a replay of 2013, where expectations of the Fed’s tightening cycle and higher interest rates (and later the taper tantrum ) sent gold lower, pushing it into bears’ embrace?To find out, let’s check how gold behaved in the previous tightening cycles. As one can see in the chart below, the last tightening cycle of 2015-2019 wasn’t very detrimental for the yellow metal ; gold prices weren’t declining, they remained in the sideways trend.Of course, the tightening created downward pressure on gold. We can see that its price started to rally when the normalization ended, and it accelerated when the Fed turned dovish and started the cycle of interest rate cuts. However, gold didn’t enter a bear market ; it’s consoling news for all gold bulls.Neither the tightening cycle of 2004-2006 was negative for gold prices . On the contrary, the price of gold appreciated in that period. Interestingly, it was a period of rising inflation , as the chart below shows. Similarly, the tightening cycle of the mid-1970s was accompanied by accelerating CPI annual rates , and it was also a positive period for gold.Hence, the upcoming tightening cycle doesn’t have to be bad for the yellow metal . If it is accompanied by rising inflation, gold may rise in tandem with the federal funds rate . So, it turns out that the key is not the actual changes in the Fed’s policy and interest rates, but the expectations of these changes, which translate into the real interest rates .Indeed, the chart below reveals a strong positive correlation between gold prices and real interest rates. It shows that gold suffered not from the actual previous tightening cycle, but from the expectations of the tightening cycle . As one can see in the chart, the yellow metal definitely entered a bear market in late 2012, just when the real interest rates bottomed out. And then, gold prices plunged in 2013 amid the taper tantrum, when the surprising announcement of tapering of asset purchases by Ben Bernanke pushed the bond yields much higher. Importantly, the actual tapering began a few months later, while the first interest rate hike came only in December 2015.So, what does this short review of the previous tightening cycles imply for the gold market? Well, the good news is that gold doesn’t have to suffer from the tightening cycle , especially if higher inflation turns out to be more lasting than commonly believed. This is because the real interest rates will remain low. And, given the increase in the public debt , Wall Street’s addiction to easy money, and the Fed’s dovish bias, the upcoming tightening will probably be less tight than the previous ones.However, I also have some bad news. First, it might be the case that inflation and inflation expectations have already peaked in May, while the real interest rates have reached the bottom. In this scenario, the outlook for gold is rather grim .Second, although gold may be fine with the actual tightening cycle, we are in the expectations phase. And what do I mean by that? Investors are betting that the Fed will start tightening its monetary policy soon; for example, they expect the official announcement on tapering as early as September 2021. And the expectations are what matters. The Fed’s meeting in June could have been a mini taper-tantrum, as it surprised investors, the bond yields rose, and the price of gold plunged. So, if history is any guide, it seems that gold still has more room to slide .Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care.
Will Strong June Nonfarm Payrolls Add To Gold's Problems?

Will Strong June Nonfarm Payrolls Add To Gold's Problems?

Finance Press Release Finance Press Release 06.07.2021 17:30
The US economy created 850,000 jobs in June. It could be another nail in gold’s coffin – what will the yellow metal do?850,000. This is how many jobs the US economy added in June. It means that the recent nonfarm payrolls came above the forecasts (economist predicted 700,000 created jobs) and are much higher than the 583,000 in May or the deeply disappointing 269,000 in April (see the chart below). Big gains occurred in sectors heavily hit previously by the pandemic, i.e., in leisure and hospitality (343,000), public and private education (269,000), professional and business services, retail trade, and other services.Furthermore, employment in April and May was revised upward by 15,000. The acceleration in the pace of job increases is a good sign for the US post-pandemic economy and a bad development for the gold market.The only relief for gold could be the fact that the unemployment rate increased from 5.8% to 5.9%, as the chart above shows. This increase was a negative surprise, as economists forecasted a decline to 5.6%. This is also quite paradoxical –unemployment remains relatively high despite a record number of job openings.Another potentially supportive factor for the gold market could be the 3.6% annual increase in wages, which means there will be higher wage inflation that could add to the consumer inflationary pressure. On the other hand, stronger wages could also support the Fed’s hawkish arguments for reducing quantitative easing and raising interest rates rather sooner than later.Implications for GoldThe newest employment situation report is negative for the yellow metal mainly because it strengthens the position of hawks within the FOMC. With strong labor market, there are higher chances that the Fed will normalize its monetary policy earlier. As a reminder, some of the central banks believe that the Fed has already reached its inflation targets. So, the labor market target is what’s left. Strong job gains in June moved the US economy much closer to achieving this Fed’s goal and erasing worries that came in the aftermath of the extremely disappointing April reading.In other words, the strong employment report may add to the current weakness in gold in the medium-term. What the yellow metal needs right now is the flux of unambiguously poor economic data that could trigger the dovish counterrevolution within the US central bank, not the positive reports that strengthen further the expectations of earlier hikes in the federal funds rate. So, the recent report could increase the bond yields and support the American dollar, creating downward pressure on gold.However, the initial response of the yellow metal was positive. As the chart below shows, the price of gold increased on Friday. This is probably because the report wasn’t as good as it could be – i.e., although the nonfarm payrolls release beat expectations, the unemployment rate increased, suggesting that the Fed may, after all, not taper as soon as some investors believe.Gold’s performance amid strong payrolls data is reassuring a bit. The yellow metal is still in the game; it may even return more decisively to the spotlight if investors cease to be relaxed about higher inflation. So far, the US central bank believes that inflation is transitory and markets are calm, but inflation may turn out to be more persistent than the Fed officials and the pundits claim. In such a scenario, the FOMC will have to catch up, which could trigger volatility or even recession; this is an environment in which investors could again switch to gold. But this is still a song of the future, and in the meantime, gold may struggle.Anyhow, for now, investors are focused on the upcoming (tomorrow!) minutes from the latest FOMC meeting. They should provide us with more clues about the Fed’s monetary policy and the direction of gold prices in the future.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
FOMC Minutes: A Confirmation of Fed’s Hawkish Shift?

FOMC Minutes: A Confirmation of Fed’s Hawkish Shift?

Finance Press Release Finance Press Release 08.07.2021 15:55
The latest FOMC minutes were… mixed. The discussion between hawks and doves continues giving gold no comfort. Who will gain the upper hand?Yesterday, the FOMC published the minutes from its last meeting in June. Investors who counted on some clear clues are probably disappointed, as the minutes can please both hawks and doves. Indeed, the report showed that the Fed officials are divided on their inflation outlook and the appropriate course of action. The dovish side believes that the recent high inflation readings are transitory and they will ease in the not-so-distant future, while the hawkish camp worries that the upward pressure on prices could continue next year:Looking ahead, participants generally expected inflation to ease as the effect of these transitory factors dissipated, but several participants remarked that they anticipated that supply chain limitations and input shortages would put upward pressure on prices into next year. Several participants noted that, during the early months of the reopening, uncertainty remained too high to accurately assess how long inflation pressures will be sustained.Importantly, most FOMC members recognized that the risks to inflation forecasts leaned more to the upside. This means that the hawkish shift is indeed real, although the Fed will remain very accommodative:Although they generally saw the risks to the outlook for economic activity as broadly balanced, a substantial majority of participants judged that the risks to their inflation projections were tilted to the upside [emphasis added] because of concerns that supply disruptions and labor shortages might linger for longer and might have larger or more persistent effects on prices and wages than they currently assumed. Several participants expressed concern that longer-term inflation expectations might rise to inappropriate levels if elevated inflation readings persisted. Several other participants cautioned that downside risks to inflation remained because temporary price pressures might unwind faster than currently anticipated and because the forces that held down inflation and inflation expectations during the previous economic expansion had not gone away or might reinforce the effect of the unwinding of temporary price pressures.As a consequence of fast economic growth and higher inflation than expected, some participants suggested that it would be appropriate to taper the quantitative easing and hike the federal funds rate sooner than previously thought. Or, to be at least prepared if higher inflation turns out to be more persistent than the consensus sees it:In light of the incoming data and the implications for their economic outlooks, a few participants mentioned that they expected the economic conditions set out in the Committee's forward guidance for the federal funds rate to be met somewhat earlier than they had projected in March (…)Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings in light of incoming data (…)Participants generally judged that, as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than-anticipated progress toward the Committee's goals or the emergence of risks that could impede the attainment of the Committee's goals.However, despite all these hawkish commentaries, the majority of FOMC members remains extremely cautious and believe that the economy has still a long way to achieve the Fed’s targets, especially full employment:Many participants remarked, however, that the economy was still far from achieving the Committee's broad-based and inclusive maximum-employment goal, and some participants indicated that recent job gains, while strong, were weaker than they had expected.So, given that the economy hasn’t yet fully recovered, inflation will likely be just transitory, and there is high uncertainty about the economic outlook, it would be premature to tighten the monetary policy and raise the interest rates:Participants generally agreed that the economic recovery was incomplete and that risks to the economic outlook remained. Although inflation had risen more than anticipated, the increase was seen as largely reflecting temporary factors, and participants expected inflation to decline toward the Committee’s 2 percent longer-run objective (…)Several participants emphasized, however, that uncertainty around the economic outlook was elevated and that it was too early to draw firm conclusions about the paths of the labor market and inflation. In their view, this heightened uncertainty regarding the evolution of the economy also implied significant uncertainty about the appropriate path of the federal funds rate (…)Participants discussed the Federal Reserve’s asset purchases and progress toward the Committee’s goals since last December when the Committee adopted its guidance for asset purchases. The Committee’s standard of “substantial further progress” was generally seen as not having yet been met, though participants expected progress to continue (…) Some participants saw the incoming data as providing a less clear signal about the underlying economic momentum and judged that the Committee would have information in coming months to make a better assessment of the path of the labor market and inflation. As a result, several of these participants emphasized that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases.Implications for GoldWhat do the recent FOMC minutes imply for gold? Well, in some sense, not so much. The minutes don’t include any revolutionary insights we are not aware of. Moreover, they lacked any clear guidelines about the future US monetary policy, as we could find both hawkish and dovish remarks in them.And indeed, the price of gold was little changed in the aftermath of the FOMC minutes, and it remained slightly above $1,800 it reached the day before (see the chart below).However, the minutes haven’t offered any significant dovish counterweight to the recent hawkish statement and the dot-plot. The statement is often more aggressive than nuanced and soft. Hence, although the minutes do show the discussion among the Fed’s officials, the hawkish shift is real. Perhaps the most important part of the document is the paragraph about the transition into a post-pandemic world.Members judged that the economic outlook had continued to improve and that the most negative effects of the pandemic on the economy most likely had occurred. As a result, they agreed to remove references in the FOMC statement that noted that the virus was "causing tremendous human and economic hardship" and that "the ongoing public health crisis continues to weigh on the economy." Instead, they agreed to say that progress on vaccinations had reduced the spread of COVID-19 and would likely continue to reduce the negative economic effects of the public health crisis.So, although the recovery is not completed and the economy hasn’t reached the Fed’s goals yet, the normalization of the US monetary policy has begun. It’s a fundamentally negative development for the gold market. Of course, gold bulls may find some comfort in the fact that it will still take at least a few meetings to develop and announce a plan of tapering the asset purchases; the interest rates cycle will start only later. Another positive factor is, of course, that gold managed to stay above $1,800 despite the lack of any clear dovish signals in the minutes.Nonetheless, the Fed’s hawkish U-turn – unless reversed because of another economic crisis, or unless accompanied by stagflation – should imply higher bond yields, a stronger greenback and, thus, weaker gold.In other words, the minutes won’t change the current market narrative, which assumes that the economic recovery is on track while inflation is just transitory. As a reminder, the latest job gains were surprisingly strong, which moves the US economy closer to full employment. Such a narrative implies strong economic confidence and limited demand for safe-havens such as gold.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Asks: Has Inflation Already Peaked?

Gold Asks: Has Inflation Already Peaked?

Finance Press Release Finance Press Release 16.07.2021 22:41
Inflation surged in May, and some worry that it has already reached its peak. Has it indeed? This issue is key for the Fed and the gold market.Inflation has soared recently. The CPI annual rate surged 5% in May, which was the fastest jump since the Great Recession. However, the Fed officials still maintain that inflation will only be temporary. Some of the analysts even claim that inflation has already peaked, and it will decelerate from now on. Are they right?Well, they present a few strong arguments. First, there is no doubt that the recent rise in prices has been partially caused by the problems with the supply chains. But, luckily, the bottlenecks are short-lived phenomena, and they always resolve themselves, i.e., by the magic of market mechanism. The best example may be lumber prices which were skyrocketing earlier this year but which have recently declined, as production surged in response to rallying prices.Second, the detailed data on inflation shows that the surge in the overall inflation index was partially driven by categories that were heavily distorted by the pandemic, such as used cars or airline fares. The increases in these categories are not surprising or worrying, given the current recovery from the epidemic.Third, the market-based inflation expectations have already peaked. As the chart below shows, both 5-year and 10-year breakeven inflation rates have reached their heights in May. Since then, the former ones have declined from above 2.7% to about 2.3%, while the latter from above 2.5% to about 2.2%It means that the markets bought the Fed’s narrative about temporary inflation and started to worry less about it.Should gold investors do the same? I’m not so sure. To be clear, I acknowledge and always acknowledged that the supply problems contributed to the acceleration in inflation. However, the risk of inflation doesn’t solely depend on continuously rising commodity prices. And the Fed officials always say that increases in inflation rates are temporary, as they don’t want to admit they failed in maintaining price stability.Some fundamental factors supporting high inflation are still in force. First, as the chart below shows, the broad money supply is still increasing fast (although there was a deceleration since February), as the monetary impulses probably haven’t been fully transmitted into the real economy yet.Second, both the monetary and fiscal policies remain very easy. Given President Biden’s fiscal agenda and the continuous increase in the public debt, the Fed is unlikely to materially normalize its monetary policy.Third, we know that in response to input cost inflation, producers raised their charges at an unprecedented pace. It means that their power to pass on greater costs has increased, which could increase both inflation and consumers’ expectations of inflation in the future.Fourth, we have just finished recovering from the economic crisis. Usually, inflationary pressures only intensify with the progress of the business cycle. With a developing and then maturing economic expansion, employment will rise, manufacturing capacity will be more fully utilized, and inflation could prove to be more persistent than anticipated by the pundits. Please remember that the fiscal stimulus the economy got was greater than the estimated size of the output gap, so the risk of overheating is still present, even if some bottlenecks have resolved.Last but not least, the rise in inflation wasn’t driven solely by the recovery from the pandemic. Some categories which were severely hit by the epidemic are not surging. For example, the index for food away from home rose annually by 4% in May 2021. Meanwhile, some core components surged. For instance, the index for shelter, which makes almost one-third of the overall index, increased from 1.5% in February to 2.2% in May 2021, as the chart below shows. It suggests that inflation may be more broad-based than many analysts think.What does all this mean for the gold market? Well, if inflation remains high or even continues to rise, the real interest rates will remain in negative territory, supporting gold prices. However, there is an important caveat: upward inflationary surprises could force the Fed to send fresh hawkish messages or even taper its quantitative easing earlier than planned, pushing the nominal bond yields higher and creating selling pressure on gold prices.It seems that so far investors were more worried by the sooner-than-expected hikes in the federal funds rate than by the rising inflation and the fact that the FOMC members have raised their inflation forecasts by an entire percentage point. Gold bulls need a shift in investors’ focus. Otherwise, the markets could remain optimistic about the future, purchasing risky assets rather than safe havens such as gold.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Powell Gave Congress Dovish Signs. Will It Help Gold?

Powell Gave Congress Dovish Signs. Will It Help Gold?

Finance Press Release Finance Press Release 20.07.2021 14:41
Powell admits that inflation is well above the Fed’s target, but he still considers it transitory. Gold increased in response – only to fall again.Last week, Powell testified before Congress. On the one hand, Powell admitted in a way that inflation had reached a level higher than expected and is above the level accepted by the Fed in the longer run:Inflation has increased notably and will likely remain elevated in coming months before moderating.It means that the Fed was surprised by high inflation, but it doesn’t want to admit it explicitly. Instead, Powell admitted that inflation would likely stay at a high level for some time. The obvious question here is: why should we believe the Fed that inflation will really moderate later this year, given that the US central bank failed in forecasting inflation in the first half of 2021?What’s more, Powell acknowledged that he hasn’t felt comfortable with the current level of inflation:Right now, inflation is not moderately above 2%; it is well above 2%. The question is, where does it leave us six months from now? It depends on the path of the economy.It means that, at some point in the future, if high inflation turns out to be more persistent than expected, the Fed will act to bring inflation back to lower levels. However, nobody knows when exactly it could happen – and I bet that, for political reasons, it would happen rather later than sooner.Indeed, even though inflation turned out to be higher than previously thought, Powell downplayed the danger of rising prices, reiterating the view that inflation is transitory. In particular, Powell maintained that recent price hikes were closely related to the post-pandemic recovery and would fade after some time:The high inflation readings are for a small group of goods and services directly tied to reopening.I dare to disagree. It’s true that the hike in the index for used cars accounted for one-third of the June CPI jump. But two-thirds of 5.4% is 3.6%, still much above the Fed’s target! Anyway, in line with its narrative, the Fed doesn’t see a need to rush with its tightening cycle. After all, the US labor market is – according to Powell and his colleagues from the FOMC – still far from achieving “substantial further progress”, with 7.5 million jobs missing from the level seen before the start of the pandemic. So, the tapering of quantitative easing is – as Powell noted – “still a ways off”. So, overall, Powell’s remarks were dovish and positive for the yellow metal.Implications for GoldWhat does Powell’s recent testimony imply for the gold market? Well, the yellow metal initially rose after his appearance in Congress. This is probably because investors bought the narrative about transitory inflation and decided that monetary taps would stay open for a long time and tapering would start later than investors expected in the aftermath of the recent dot-plot. The rising cases of the Delta variant of the coronavirus is another reason why investors could bet that the Fed would maintain its accommodative monetary policy. So, the bond yields declined, while the price of gold increased as the chart below shows.However, gold’s reaction was disappointingly soft given the dovishness of Powell’s remarks, and the yellow metal declined again later last week amid some better-than-expected economic data. It seems that there is hesitancy among precious metals investors about whether or not to take a more decisive step with purchases of gold. The reason is probably that, sooner or later, the interest rates will have to rise in response to inflation. It means that the opportunity costs of holding gold will increase, exerting some downward pressure on gold.Nevertheless, the real interest rates should remain low, so gold prices shouldn’t drop like a stone. Actually, in the longer run, when inflation creates some economic problems while the economic growth slows down, the yellow metal could finally benefit from the stagflationary conditions.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold – Has the summer rally already begun?

Gold – Has the summer rally already begun?

Florian Grummes Florian Grummes 20.07.2021 15:07
After the sharp drop in the first half of June and a tenacious sideways bottoming out, the gold price recovered to US$1,834 and thus reached its 200-day moving average (US$ 1,827) again. Gold – Has the summer rally already begun?ReviewSince gold prices reached a new all-time high at US$2,075 on August 7th, 2020, the entire precious metal sector has been in a multi-month correction. After eight months within this correction, gold fell back to an important double low at around US$1,676 in mid and late March. From there, prices recovered strongly in April and May. This wave up ended at US$1,916 (+14.3% in eight and a half weeks). Subsequently, gold prices came under strong selling pressure once again. A quick and steep sell off took prices down by US$142 within just one week between June 11th and 18th. But it was not until June 29th that the gold market finally found its turning point at US$1,750. From here, an initially tenacious but step by step more dynamic recovery towards US$1,834 began. Over the last few days, gold slipped back below US$1,800 only to recover quickly back to US$1,815.While central bankers, politicians and the media have been talking down the increasing fears of inflation (US consumer price index +5.4% in June), gold was only able to recover slowly from the severe pullback in June. Nevertheless, gold current trades about US$65 higher than at its low point a three weeks ago. Is this the end of the typical early summer correction in the precious metals sector or is there still some more downside to come?Technical Analysis: Gold in US-DollarWeekly Chart – The series of higher lows remains intactGold in US-Dollars, weekly chart as of July 20th, 2021. Source: TradingviewOn the weekly chart, gold has been moving higher within a clearly defined uptrend channel (dark green) since autumn 2018. The lower edge of this trend channel was tested in April 2019. The sharp pullback in June, on the other hand, has so far ended at US$1,750 and thus at the connecting line (light green) of the last three higher lows. At the same time, the upper edge of the former downward trend channel (red) was successfully tested for support.If the correction is now over, gold could already be on the way to its upper Bollinger Band (US$1,911). In any case, the stochastic has turned upwards again and thus provides a new buy signal.Overall, the weekly chart is not (yet) convincing, but the bullish tendencies prevail. To confirm the uptrend, a higher high is needed in the next step, which would require gold prices above US$1,916. Until then, however, the bulls still have a lot of work to do. If, on the other hand, the low at US$1,750 is being taken out, another retracement towards the lower edge of the uptrend channel at around US$1,670 to US$1,700 is very likely.Daily Chart – Around the falling 200-day moving averageGold in US-Dollars, daily chart as of July 20th, 2021. Source: TradingviewOn the daily chart, gold had good support at the cross of a downtrend and an uptrend line. Starting from that zone and the low at US$1,750, gold did already recover slightly above the still falling 200-day moving average (US$1,824). However, as the stochastic oscillator has already moved into the overbought zone and created a new sell signal. As well, the upper Bollinger Band (US$ 1,831) is blocking the bulls. Hence, a consolidation around the 200-day moving average would be a highly conceivable scenario.Bulls need to gain confidence againOnce the important 200-day moving average will have been sustainably recaptured and the bulls will have gained some confidence, the rally could continue and transform into the typical summer rally. The next target would then be the downward trend line from the all-time high via the high from the end of May. This line is currently sitting at around US$1,892 and is falling a few dollars a day.In summary, the daily chart is overbought in the short term. This means that the risk/reward ratio is not good right now. Ideally, however, the bulls will succeed in consolidating around the200-day moving average for at least a few days or even several weeks. This would provide the launching pad for the summer rally and higher gold prices. If, on the other hand, prices fall below US$1,790 again, the correction will likely continue. However, only below US$1,765 the promising setup for a midsummer rally would be destroyed.Commitments of Traders for Gold – Has the summer rally already begun?Commitments of Traders for Gold as of July 19th, 2021. Source: SentimentraderThe commercial traders used the sharp pullback in June to cover their short positions again. This has eased the setup in the futures market somewhat. Nevertheless, with 221.028 contracts sold short as of last Tuesday, commercial traders still hold a relatively high short position on the gold future in a longer-term comparison.In summary, the current Commitment of Trades report (CoT) still does not provide a contrarian buy signal but calls for caution and patience.Sentiment for Gold – Has the summer rally already begun?Sentiment Optix for Gold as of July 19th, 2021. Source: SentimentraderThe Sentiment in the gold market fell to a low at the end of June and has since recovered quite a bit. However, this low did not represent an extreme, but rather showed only a slight increase in pessimism. The last “real” panic low in the gold market, on the other hand, was last seen in August 2018 with the sell-off at that time down to US$1,160. No one can predict when and if such a good contrarian opportunity will arise again in this bull market. It remains to be said that the correction in June did not lead to any extreme pessimism, and that confidence has already prevailed again.The sentiment thus tends to reinforce the doubts about a sustainable and imminent wave up.Seasonality for Gold – Has the summer rally already begun?Seasonality for Gold over the last 53-years as of July 14th, 2021. Source: SentimentraderA strong green light, on the other hand, currently comes from the seasonal component! Statistically, a major bull move in the gold market begins precisely in these days. This wave up usually lasts until the end of September or even mid-October. Although the price action of the last three weeks left the impression of an early summer doldrums, it is precisely this price behavior that fits the seasonal pattern.Hence, as soon as the gold market will start to move, the chances of a strong movement up are very favorable from a seasonal perspective.Sound Money: Bitcoin/Gold-RatioBitcoin/Gold-Ratio as of July 20th, 2021. Source: TradingviewWith prices of around US$29,500 for one bitcoin and US$1,815 for one troy ounce of gold, the Bitcoin/Gold-ratio is currently around 16.25. This means that you currently must pay a bit more than 16 ounces of gold for one bitcoin. Conversely, one ounce of gold currently costs 0.0615 bitcoin. Since the sharp sell off at the beginning of May, the bitcoin/gold ratio has mainly been running sideways. Another price slide does not seem out of the question given the continued weakness of bitcoin. However, the long-term uptrend in favor of bitcoin remains intact, while the stochastic on the ratio chart is heavily oversold.You want to own Bitcoin and gold!Generally, buying and selling Bitcoin against gold only makes sense to the extent that one balances the allocation in those two asset classes! At least 10% but better 25% of one’s total assets should be invested in precious metals physically, while in cryptos and especially in bitcoin one should hold at least between 1% and 5%. If you are very familiar with cryptocurrencies and bitcoin, you can certainly allocate much higher percentages to bitcoin on an individual basis. For the average investor, who is primarily invested in equities and real estate, 5% in the still highly speculative and highly volatile bitcoin is a good guideline!Overall, you want to own gold as well as bitcoin since opposites complement each other. In our dualistic world of Yin and Yang, body and mind, up and down, warm and cold, we are bound by the necessary attraction of opposites. In this sense you can view gold and bitcoin as such a pair of strength. With the physical component of gold and the pristine digital features of bitcoin you have a complementary unit of a true safe haven for the 21st century. You want to own both! – Florian GrummesMacro update and Crack-up-Boom:FED Balance sheet as of July 10th, 2021. Source Holger ZschaepitzIn terms of monetary expansion, the global uptrend continued in recent weeks, of course. The balance sheet of the US Federal Reserve grew by US$19 billion to a total of US$ 8,097.8 billion and thus once again reached a new all-time high. The Fed’s balance sheet total is now equivalent to 37% of the GDP in the USA.ECB Balance sheet as of July 13th, 2021. Source Holger ZschaepitzThe ECB’s balance sheet rose by another EUR 18.7 billion last week to a new all-time high of EUR 7,926.6 billion. With this, the ECB also created new billions out of thin air, as it does every week, completely irrespective of which of its various goals (symmetric or average price target, pandemic emergency purchase program PEPP or quantitative easing) is currently supposedly being pursued.ECB Balance sheet in percentage of Eurozone GDP as of July 10th, 2021. Source Holger ZschaepitzThe ECB’s balance sheet total is now equivalent to over 75% of the GDP of the entire Eurozone, reflecting the ECB’s huge increase in power. The central bank has long since been unable to concentrate on its actual goal of price stability. Instead, it has taken on too many other tasks in the ECB Tower in Frankfurt. And these fiscal and monetary interventions are becoming increasingly vertical.Central banks are destroying the free marketDigital Euro as of Jul 14, 2021. Source: European Central BankHowever, printing money has never worked in the history of mankind. It will not work this time either. The question remains how long the music will continue to play for the dance on the volcano, and whether it will still be possible in time to finally and completely eliminate the free markets with a new digital EUR currency.ECB = Reichsbank 2.0 as of July 8th, 2021. ©Stefan SchmidtIn the end, Madame Lagarde, just like Rudolf Havenstein, is a prisoner of the absurd financial policy that has maneuvered itself into a dead end thanks to an unbacked paper money system. Havenstein, by the way, was also an inflationist and, until his death in November 1923, interpreted the Weimar hyperinflation as a product of the unfavorable balance of payments and did not get the idea that it had come about through the unbridled use of the printing press.Conclusion: Gold – Has the summer rally already begun?After the sharp pullback in June and an initially tenacious bottoming phase, gold recovered towards US$ 1,834 in the last two weeks. Even though this rally took quite some effort, gold makes the impression that there is more upside to come. The summer rally has probably already started. After a temporary consolidation around the 200-day moving average, August should bring significantly higher gold prices (US$1,865 and US$1,910). Short-term pullbacks towards and below US$1,800 are therefore buying opportunities.However, the performance of the mining stocks does not quite fit into this optimistic picture. The GDX (VanEck Gold Miners ETF) is currently trading well below its 200-day moving average. And heavyweights such as Newmont Corporation and Barrick Gold have not been able to get back on their feet at all since the sell-off in mid-June. Despite this weakness in gold mining stocks, the call for a summer rally in the sector will have to be canceled if gold moves back below US$1,765.Analysis initially written on July 15th and published on July 19th, 2021, by www.celticgold.eu. Translated into English and partially updated on July 20th, 2021.Feel free to join us in our free Telegram channel for daily real time data and a great community.If you like to get regular updates on our gold model, precious metals and cryptocurrencies you can subscribe to our free newsletter.By Florian Grummes|July 20th, 2021|Tags: Bitcoin, Bitcoin correction, bitcoin/gold-ratio, Gold, Gold Analysis, Gold bullish, gold correction, Gold Cot-Report, gold fundamentals, gold mining, Gold neutral, Silver, The bottom is in|0 CommentsAbout the Author: Florian GrummesFlorian Grummes is an independent financial analyst, advisor, consultant, trader & investor as well as an international speaker with more than 20 years of experience in financial markets. He is specialized in precious metals, cryptocurrencies and technical analysis. He is publishing weekly gold, silver & cryptocurrency analysis for his numerous international readers. He is also running a large telegram Channel and a Crypto Signal Service. Florian is well known for combining technical, fundamental and sentiment analysis into one accurate conclusion about the markets. Since April 2019 he is also chief editor of the cashkurs-gold newsletter focusing on gold and silver mining stocks.
ECB Turns Even More Dovish. Breakthrough for Gold?

ECB Turns Even More Dovish. Breakthrough for Gold?

Finance Press Release Finance Press Release 27.07.2021 15:46
The ECB has become the exact opposite of the FED in terms of monetary policy. This dovishness might actually be bad news for gold.The European Central Bank held its monetary policy meeting last week. It was an important event, as it was the first meeting since the adoption of the new ECB’s strategy, and as the ECB has introduced some changes. It left the interest rates unchanged, but it modified its forward guidance.Long story short, the ECB announced that it would keep its policy rates at ultra-low levels for even longer than previously pledged, as it doesn’t want to tighten prematurely:In support of our symmetric two per cent inflation target and in line with our monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until we see inflation reaching two per cent well ahead of the end of our projection horizon and durably for the rest of the projection horizon, and we judge that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.Previously, the ECB maintained that it would keep the interest rates unchanged until inflation expectations converge with the central bank’s target. The change implies that the ECB is unlikely to raise the interest rates until at least 2023, as this is when the projection horizon ends. Central bankers want inflation to be stable at the target, and they won’t hike without tapering quantitative easing earlier.Additionally, the ECB has decided to keep the pace of its asset purchases under the Pandemic Emergency Purchase Programme at the current (faster than it was originated) pace over the third quarter of 2021:Having confirmed its June assessment of financing conditions and the inflation outlook, the Governing Council continues to expect purchases under the pandemic emergency purchase programme (PEPP) over the current quarter to be conducted at a significantly higher pace than during the first months of the year.So, the ECB’s monetary policy has become even more accommodative. The alteration could be explained by two factors: the ECB’s new strategy and the Delta variant of the coronavirus. But the real reason is, of course, protecting the European government from the market interest rates – however, this is a topic for another discussion.I have covered both of the ‘official’ factors recently, warning my readers that the change in the strategy implies that the ECB has adopted an even more dovish stance and that the spread of Delta could prompt the central banks to further loosen their stance. This is exactly what has happened – as Christine Lagarde pointed out during her press conference:The recovery in the euro area economy is on track. More and more people are getting vaccinated, and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as the delta variant constitutes a growing source of uncertainty.Implications for GoldWhat does the change in the ECB’s monetary policy imply for the gold market? Well, one could say that more dovish central banks are positive for gold, which likes the environment of low interest rates and bond yields.However, economics is about relative values. So, from the point of view of the comparative analysis, the ECB’s dovish shift is bad news for the yellow metal. This is why the Fed looks hawkish in comparison to the ECB, its main counterparty. After all, the Fed has actually started talking about tapering and monetary policy normalization, while the ECB has just announced that it would keep its quantitative easing at an elevated pace and would maintain its ultra-low interest rates for even longer.Hence, the greenback appreciated relative to the euro after the ECB’s monetary policy meeting. Although a stronger dollar creates downward pressure on the yellow metal, the price of gold barely moved and is still trading around $1,800, as the chart below shows.However, there is a silver lining here. Some market participants were actually disappointed that the ECB didn’t provide a stronger adjustment. Indeed, no monetary bazookas this time. Moreover, the ECB’s decision was not unanimous, so there is some sort of a hawkish camp. Last but not least, it might be the case that the Fed will also loosen its stance if the Delta variant spreads in a dangerous way. Having said that, the divergence in monetary policy and interest rates across the pond should be a headwind for gold prices for a while.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Behavior of Inflation and Bond Yields Seems… Contradictory

Behavior of Inflation and Bond Yields Seems… Contradictory

Finance Press Release Finance Press Release 29.07.2021 19:15
The bond yields dropped despite surging inflation. It’s not a usual thing on the market, so we have to ask: what does it mean for gold?The markets hide many mysteries. One of them is the recent slide in the long-term bond yields. As the chart below shows, both the nominal interest rates and the real interest rates have been in a downside trend since March (with a short-lived rebound in June). Indeed, the 10-year Treasury yield reached almost 1.75% at the end of March, and by July it decreased to about 1.25%, while the inflation-adjusted yield dropped from -0.63% to about -1%.What’s intriguing, this drop happened despite the surge in inflation. As you can see in the chart below, the seasonally adjusted annual CPI inflation rate surged to 5.3% in June, the highest level since the Great Recession. Even as inflation soared, the bond yields declined.Why is that? Are bond traders blind? Don’t they see that the real interest rates are deeply negative? Indeed, the TIPS yields are the lowest in the history of the series (which began in 2003), while the difference between the nominal 10-year Treasury yields and the CPI annual rates is the lowest since June 1980, as the chart below shows.The pundits say that the decline in the bond yields suggests that inflation will only be temporary and there is nothing to worry about. This is what the central bankers repeat and what investors believe. However, history teaches us that the bond market often lags behind inflation, allowing the real interest rates to plunge. This happened, for example, in the 1970s (see the chart above), when the bond market was clearly surprised by stagflation.Another issue here is that the central banks heavily influence the bond markets through manipulation of interest rates and quantitative easing, preventing them from properly reacting to inflation. Actually, some analysts say that the bond market is the most manipulated market in the world. So, it doesn’t have to predict inflation properly.Implications for GoldWhat does the divergence between the bond yields and inflation imply for gold? Well, as an economist, I’m tempted to say “it depends”. You see, if inflation is really temporary, it will start declining later this year, making the real interest rates rise. In that case, gold would suffer (unless inflation decreases together with the pace of economic growth).It might also be the case that the divergence will narrow as a result of the increase in the nominal interest rates. Such a move would boost the real interest rates and create downward pressure on gold.However, if inflation turns out to be more persistent than expected, investors will fear an inflation tail risk, and they will be more eager to buy gold as an inflation hedge. As I’ve explained, the decline in the bond yields doesn’t have to mean low inflation expectations. It may also indicate expectations of slower economic growth. Combined with high inflation, it would imply stagflation, a pleasant environment for gold.Another bullish argument for gold is the observation that the price of gold has recently lagged the drop in the real interest rates, as the chart below shows. So, it might be somewhat undervalued from the fundamental point of view.However, given the upcoming Fed’s tightening cycle and the record low level of real interest rates, I would bet that the above-mentioned rates will increase later this year, which should send gold prices lower. But if they rise too much, it could make the markets worry about excessive indebtedness and release some recessionary forces. Then, the current reflation could transform into stagflation, making gold shine. So, gold could decline before it rallies again.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Be Ready to Sell AUD

Be Ready to Sell AUD

Kseniya Medik Kseniya Medik 30.07.2021 16:03
What is happening?The Reserve Bank of Australia will hold a meeting on August 3. Analysts believe the bank may increase its quantitative easing program, while other banks are lowering their bond buys or discussing this decision.Why?Australia is poorly coping with the new Covid-19 wave. Sydney's current lockdown is expected to end on August 28 and there are some rumors that it might be extended. Five weeks of lockdown haven’t helped – infections continue to spread.What to expect?Westpac, an Australian bank, claimed that the RBA may lift the purchase pace from 5 billion Australian dollars to 6 billion. If the bank increases asset purchases, it may surprise the markets and send the AUD down.The AUD has already weakened. It has dropped against all major peers in July! Just look at the chart.ForecastAUD/USD is forecasted at 0.73 at the end of 2021 by Wells Fargo, 0.74 by the end of March 2022, 0.75 by the end of June 2022, and 0.76 by the end of September.Tech tipsAUD/USD is moving inside the descending channel. However, it has been stuck in a range between 0.7340 and 0.7400 since July 21. It’s touching the upper trend line now, therefore the pair is likely to reverse down. If it drops below the 0.7340 support level, it may fall to the low of July 20 at 0.7300. Resistance levels are high of July 29 at 0.7400 and the next round number of 0.7450.Download the FBS Trader app to trade anytime anywhere! For personal computer or laptop, use MetaTrader 5!
Gold at a Crossroads of Hawkish Fed and High Inflation

Gold at a Crossroads of Hawkish Fed and High Inflation

Finance Press Release Finance Press Release 30.07.2021 18:27
Gold has been trading sideways recently, but this won’t last forever – the yellow metal is likely to move downward before continuing its rise.So, so you think you can tell heaven from hell, a bull market from a bear market? It’s not so easy, as gold seems to be at a crossroads. On the one hand, accelerating inflation should take gold higher, especially that the real interest rates stay well below zero. On the other hand, a hawkish Fed should send the yellow metal lower, as it would boost the expectations of higher bond yields. The Fed’s tightening cycle increases the interest rates and strengthens the US dollar, creating downward pressure on gold.However, gold is neither soaring nor plunging. Instead, it seems to be in a sideways trend. Indeed, as the chart below shows, gold has been moving in a trading zone of $1,700-$1,900 since September 2020.Now, the obvious question is: what’s next? Are we observing a bearish correction within the bull market that started in late 2018? Or did the pandemic and the following economic crisis interrupt the bear market that begun in 2011? Could a new one have started in August 2020? Or maybe gold has returned to its sideways trend from 2017-2018, with the trading corridor simply situated higher?Oh boy, if I had the answers to all the wise questions that I’m asking! You see, the problem is that the coronavirus crisis was a very special recession – it was very deep but also very short. So, all the golden trends and cycles have intensified and shortened. What used to be years before the epidemic, took months this time. Welcome to a condensed gold market!Hence, I would say that the peak of July 2021 marked the end of the bull market which started at the end of 2018, and triggered a new bear market, as traders decided that the vaccines would save the economy and the worst was behind the globe. This is, of course, bad news for all investors with long positions.I didn’t call the bear market earlier, as the combination of higher inflation and a dovish Fed was a strong bullish argument. However, the June FOMC meeting and its dot-plot marked a turning point for the US monetary policy. The Fed officials started talking about tapering, divorcing from its extraordinary pandemic stance.So, I’ve become more bearish in the short-to-medium term than I was previously. After all, gold doesn’t like the expectations of tapering quantitative easing and rising federal funds rate. The taper tantrum of 2013 made gold plunge.Nonetheless, the exact replay of the taper tantrum is not likely. The Fed is much more cautious, with a stronger dovish bias and better communication with the markets. The quantitative tightening will be more gradual and better announced. So, gold may not slide as abruptly as in 2013.Another reason for not being a radical pessimist is the prospects of higher inflation. After all, inflation is a monetary phenomenon that occurs when too much money is chasing too few goods – and the recent rate of growth of the broad money supply was much higher than the pace needed to reach the Fed’s 2% target. The inflationary worries should provide some support for gold prices. What gold desperately needs here is inflation psychology. So far, we have high inflation, but markets remain calm. However, when higher inflation expectations set in, gold may shine thanks to the abovementioned worries about inflation’s impact on the economy – and, thanks to stronger demand for inflation hedges.In other words, gold is not plunging because the Fed is not hawkish enough, and it’s not rallying because inflation is not disruptive enough. Now, the key point is that it’s more likely that we will see a more hawkish Fed (and rising interest rates) sooner than stagflation. As the chart below shows, the real interest rates haven’t yet started to normalize. When they do, gold will suffer (although it might not be hit as severely as in April 2013).Therefore, gold may decline shortly when the US central bank tapers its asset purchases (and the bond yields increase) while the first bout of inflation softens. But later, gold may rise due to the negative effects of rising interest rates and the second wave of higher inflation.In other words, right now, the real economy is thriving, so inflation is not seen as a major problem, as it is accompanied by fast GDP growth. However, the economy will slow down at some point in the future (partially because of higher inflation) – and then we will be moving towards stagflation, gold’s favorite macroeconomic environment.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get a 7-day no-obligation trial for all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Will the Fed Bring Gold to the Bottom?

Will the Fed Bring Gold to the Bottom?

Finance Press Release Finance Press Release 06.08.2021 13:05
The Fed’s reverse repos reached almost $1 trillion in June. Brace yourselves gold bulls – tightening is coming!Something interesting is happening in the financial markets. As you probably know, the Fed’s reverse repurchase operations have been increasing recently. At the very end of June, their volume almost reached one trillion dollars ($991.9 billion)! It’s a record high, as the chart below shows.Oh boy, what a spike! What does it mean? Well, when the Fed purchases assets, it injects liquidity into the markets. On the contrary, when the US central bank engages in reverse repurchase operations, it drains liquidity from the markets. This is because reverse repurchase agreements are purchases of securities with the agreement to sell them at a higher price at a specific future date – of course, we refer here to buying and selling from the point of view of financial institutions. They are purchasing assets from the Fed to resell them later, so they basically lend some money to the US central bank.In other words, the record high volume of repos means that financial institutions pour cash into the Fed like mad. We could say that there is an excessive liquidity problem in the financial markets, so commercial banks and other institutions deposit abundant cash at the Fed (you can think of reverse repos as short-term loans).So, we have a somewhat paradoxical situation. The Fed is still purchasing assets under its quantitative easing program, injecting liquidity into the financial sphere. However, market participants don’t need this liquidity, so they buy back some assets from the Fed in the form of reverse repo operations. Given that the Fed buys about $120 billion per month in Treasuries and MBS, the reverse repos have already undone more than eight months of QE!Part of the problem here is the crazy world of negative real interest rates. In such an environment, commercial banks prefer safe, close-to-zero interest rates from the Fed to risking anything in the market. In other words, the bond yields are so low that banks don’t want to deploy funds productively but prefer to hold them safely at the Fed. Such behavior is completely understandable in the world of negative yields, but it will lead to sluggish investment and economic growth. Well, abundant liquidity that becomes a hot potato, as well as slow real growth, sound like positive factors for gold, which likes stagflation-like conditions.However, the reverse repos are strictly linked to the Fed’s plan to normalize its monetary policy at some point in the future. But hiking the federal funds rate is not simple with such a mammoth balance sheet. You see, the Fed’s balance sheet is simply too big. As the chart below shows, the US central bank’s assets amount to above $8 trillion.Such a giant balance sheet creates downward pressure on the interest rates. If left alone, they could even drop below zero. This is why the Fed started the overnight repurchase operations – to drain some excessive liquidity from the markets in order to regain control over the interest rates. So, the current developments in the repo market are a strong signal that the Fed is preparing for raising the interest rates. Actually, the Fed has already lifted its repo rate from 0% to 0.05%, allegedly as a technical adjustment. This is a fundamentally negative factor for the gold market.Nonetheless, gold bulls may find comfort in the fact that it’s not easy to return to normalcy. Remember the Fed’s previous attempt to normalize its monetary policy? The US central bank had to reverse its course in 2019, just two years after starting the balance sheet’s reduction. It turned out that quantitative tightening was too harsh for fragile financial markets, and the Fed had to pump liquidity again (in the form of repo operations), as well as cut the interest rates – even before the pandemic and the following economic crisis started. Similarly, by paying trillions in reverse repos at 0.05% now, the Fed makes them more attractive, planting the seeds of the next liquidity crisis.In other words, the Fed’s tightening cycle practically always ended up in a recession. Moreover, there were many indicators that the recession would take place in 2020 or 2021 anyway, even without the coronavirus and the Great Lockdown. So, this time won’t be different. Well, actually, it could be different –in such a way that the next recession will be accompanied by higher inflation. If stagflation really occurs, gold will shine as it did in the 1970s.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get a 7-day no-obligation trial for all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
The Tapering Clock Is Ticking: Fed Gives Gold Some Time

The Tapering Clock Is Ticking: Fed Gives Gold Some Time

Finance Press Release Finance Press Release 06.08.2021 16:55
The Fed acknowledged the economy’s progress, but it’s still not “substantial progress.” In short, Powell merely slowed the hand of the tapering clock.Last week (July 28, 2021), the FOMC published its newest statement on monetary policy. The publication was barely altered. The Fed noted that the US economy has continued to strengthen, although the sectors most heavily hit by the pandemic haven’t fully recovered yet. According to the FOMC members, the economy continues to depend on the course of the coronavirus, but not “significantly” anymore. So, the Fed acknowledged that the American economy has strengthened (even with the recent worries about delta variant) and that we are returning to post-epidemic normalcy. Theoretically, it’s bad news for gold, but this is something we all know, so the practical impact should be minimal.A much more interesting change in July’s FOMC statement is the part about the Fed’s asset purchases:Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.As one can see, the US central bank admitted that the economy had made progress towards its goals, but it was just “progress”, while the Fed needs “substantial further progress” to normalize its monetary policy. So, we still have some distance to the tapering of quantitative easing.However, the emphasis that economy has made progress towards Fed’s goals is a hawkish signal that the tightening cycle is on the way. This is, at least, how markets interpreted the message, as the likelihood of a 2022 interest rate hike has initially increased after the FOMC meeting, according to the CME’s FedWatch tool.This would be bad for gold, but Powell held out a helpful, dovish hand. During his press conference, Fed Chairman noted that the US economy is far away from reaching “substantial further progress” toward the maximum employment goal.So, what would substantial further progress be? I'd say we have some ground to cover on the labor market side. I think we're some way away from having had substantial further progress with max -- toward the maximum employment goal. I would want to see some strong job numbers. And that's kind of the idea.Powell also reiterated that the Fed would provide advance notice before tapering its asset purchases and that the liftoff of the interest rates is still a long way ahead of us, as the Fed won’t raise the federal funds rate before tapering:In coming meetings the Committee will again assess the economy’s progress toward our goals, and the timing of any change in the pace of our asset purchases will depend on the incoming data. As we have said, we will provide advance notice before making any changes to our purchases (…)We’re clearly a ways away from considering raising interest rates. It’s not something that is on our radar screen right now. You know, so when we get to that question, when we start to get to the question of liftoff, which we are not at all at now or near now, that’s when we’ll ask that question. That is when that will become a real question for us (…)And, again, it’s not timely for us to be thinking about raising interest rates right now. What we’re doing is we're looking at our asset purchases and judging what is right for the economy and judging how we -- how close we are to substantial further progress and then tapering after that.Implications for GoldWhat does the recent FOMC meeting imply for the gold market? Well, as the chart below shows, the recent statement on monetary policy wasn’t particularly impactful on the yellow metal. Gold declined slightly below $1,800 on the day of the publication, but it increased to $1,829 the next day. Since then, the price of the yellow metal has returned to the level of around $1,800.However, the FOMC’s decision may have some longer-term implications for the gold market as well. On the one hand, the statement and Powell’s press conference were dovish, as they emphasized that – despite some progress – the substantial progress hasn’t materialized yet, so we are still ahead of the tapering, not even mentioning any hikes in the interest rates. So, gold could catch its breath.On the other hand, the tapering clock is ticking. In June, the Fed started talking about tapering, while last month it noted that some progress has been made towards its goals. It’s likely that within a few months mere progress will transform into substantial progress, especially given that the job gains in July were strong and above the forecasts. With further improvements in the labor market, the expectations of a more hawkish Fed should strengthen, exerting downward pressure on the gold prices.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
The Newest Nonfarm Payrolls Crushed Gold Like a Sandcastle

The Newest Nonfarm Payrolls Crushed Gold Like a Sandcastle

Finance Press Release Finance Press Release 10.08.2021 11:52
The US economy added almost 1 million jobs in July, building solid ground for tapering. Meanwhile, the PMs’ sandy foundations crumbled spectacularly.Another blow to gold! July’s nonfarm payrolls came in strong. As the chart below shows, the US labor market added 943,000 jobs last month, following 938,000 additions in June (after an upward revision). More than one-third of all gains occurred in leisure and hospitality, reflecting the economy’s reopening after the Great Lockdown.What’s more, the nonfarm payrolls surprised the markets on the positive side. The economists surveyed by MarketWatch forecasted “only” 845,000 gains. Additionally, the employment in May and June combined was 119,000 higher than previously predicted. Another positive revelation was the decline in the unemployment rate from 5.9% to 5.4% – a much lower level than it was expected (5.7%), as the chart above shows.Although the number of employed people is still down by 5.7 million from its pre-pandemic level in February 2020, it’s much higher than in April 2020 (by 16.7 million) – a clear sign that the US labor market is recovering from the last year’s recession and heading into full employment.Importantly, the July nonfarm payrolls came in one week after the strong advance estimate of the US GDP in Q2 2021. According to the Bureau of Economic Analysis, the real GDP increased 12.2% year-over-year (or 1.59% quarter-to-quarter or 6.5% at an annual rate). As the chart below shows, it was the quickest pace of economic growth since the fourth quarter of 1950. Of course, the number results from a very low base last year, but it doesn’t change the fact that the economy has strengthened recently.Implications for GoldWhat does the recent employment report imply for the gold market? Well, in the last Fundamental Gold Report, I pointed out that the Fed started the countdown to the tapering of its quantitative easing and would announce it later this year:The tapering clock is ticking. In June, the Fed started talking about tapering, while last month it noted that some progress has been made towards its goals. It’s likely that within a few months mere progress will transform into substantial progress, especially given that the job gains in July were strong and above the forecasts. With further improvements in the labor market, the expectations of a more hawkish Fed should strengthen, exerting downward pressure on the gold prices.The latest surprisingly strong nonfarm payrolls bring us closer to the beginning of the Fed’s tightening cycle. You see, the thing the Fed lacked to recognize “substantial progress” towards its goal of maximum employment was a few strong employment reports. Last month, the US economy added almost 1 million jobs, which significantly reduced the slack in the labor market.If August turns out to be similarly strong, the FOMC could announce the start of the tapering of its asset purchases in September. Actually, some analysts believe that Powell could signal it in his speech in Jackson Hole at the end of August.So, in line with my previous commentary, the strong nonfarm payrolls lifted the expected path of the federal funds rate, sending gold prices much lower. According to the CME FedWatch Tool, the odds of an interest rate hike in December 2022 increased after the publication of the employment report from 58.8% to 66.2%. As a result, the price of gold plunged from around $1,800 to $1,760, as the chart below shows.Unfortunately, gold has further room to continue its slide. Each positive economic news or any hawkish signal from the Fed (e.g., Richard Clarida, Fed Vice Chair, expressed his belief last week that “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022”) could add to the expectations of higher interest rates and to the downward pressure on the yellow metal.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
August Starts Illy for Gold. Could September Change Anything?

August Starts Illy for Gold. Could September Change Anything?

Finance Press Release Finance Press Release 12.08.2021 15:14
The WGC believes that gold will shine in September. Given the whole context, I’m not so sure – in fact, not sure at all.Following three previous reports, the WGC revealed two more interesting publications at the turn of July and August. The first one is the report about gold demand trends in Q2 2021. As we can read, the demand for gold was virtually flat in Q2 (y-o-y), but in the first half of the year it decreased 10.4%. Importantly, there were modest inflows into gold ETFs in Q2 and also in July, but they only partially offset the huge outflows of the previous quarter. Hence, investors’ sentiment turned more positive in the second quarter, which helped gold prices rebound somewhat after Q1.Indeed, as the chart below shows, the price of gold plunged 10% in Q1 2021. Then, it rebounded 4.3% in the second quarter, but it was not enough to offset the blow from the first three months of the year. In July, the price of gold jumped 3.6%, although it retraced most of that increase in August (it decreased 2.1% in a single day – Aug. 6). So, gold prices declined more than 6% year-to-date.Unfortunately, there is potential for further declines. After strong July’s nonfarm payrolls, the Fed has no excuses not to start tapering of its quantitative easing. What’s more, the current levels of the real interest rates are very low, so they are likely to normalize somewhat later this year.The second WGC publication is the newest edition of the Gold Market Commentary entitled Equity yields support gold as investors position for historical September strength. The main thesis of the article is that “August could be the opportune time to position for the historically strong September gold performance”. Well, given last week’s plunge in gold prices, this suggestion looks rather amusing, but who knows? There is plenty of time until September, which is historically quite positive for gold.The justification for this thesis is two-fold. First, central banks focus now more on employment than inflation, which could prolong tapering activity. It’s true that the upcoming Fed’s tightening cycle will be very gradual, and the Fed’s balance sheet (as well as the federal funds rate) won’t probably return to the pre-pandemic levels. However, it’s also true that the Fed has already started the tapering clock and will likely tighten its monetary policy somewhat this year. This is what the markets are pricing in, and such expectations boost the real interest rates and create downward pressure on gold prices.Second, the S&P 500’s real yield (i.e., companies’ earnings yield plus the dividend yield minus inflation) has turned negative, which reduces the opportunity costs of holding gold. Well, the equity market looks overbought, but with low interest rates, high inflation and the Fed always ready to reach out a helping hand, investors may continue to flow into this market.Implications for GoldWhat can we learn from the recent World Gold Council reports? Well, just like the WGC, I’m bullish on gold in the long run, but I’m more bearish in the shorter timeframe. In other words, I believe that gold may go down first before it rallies again. September is a historically good month for gold, but this year it might also be the month when the Fed announces the start of the tapering of its asset purchases. The hawkish Fed would push bond yields higher and strengthen the dollar, sending the price of the yellow metal down in the short-to-medium term.Luckily, an abrupt taper tantrum similar to the one from 2013 is not likely to happen again. Moreover, a bit later either the post-tightening recession or inflation running out of control could make gold shine again. After all, inflation is well above the Fed’s target, while the real yields will likely remain negative for a long period. These factors should provide support for gold over a longer horizon, but investors shouldn’t downplay the upcoming tightening cycle and rising interest rates.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Rallies on Softening Inflation. What’s Going On?

Gold Rallies on Softening Inflation. What’s Going On?

Finance Press Release Finance Press Release 17.08.2021 17:17
Inflation softened slightly in July and gold prices rose, but the bullish joy may be premature. How should we respond?Inflation eased a bit in July, but it remained disturbingly high. According to the latest BLS report on inflation, the CPI increased 0.5% in July after rising 0.9% in June. The core CPI, which excludes food and energy, also softened, as it rose 0.3% in July after increasing 0.9% in June. The deceleration was mainly caused by a much smaller advance in the index for used cars, which increased only 0.2% (it was 10.5% in June).However, on an annual basis, inflation practically stayed unchanged since June, as the chart below shows. The overall index surged 5.4% for the second month in a row (on a seasonally unadjusted basis), while the core CPI soared 4.3%, following a 4.5% jump in the previous month.So, at first glance, it seems that inflation has peaked. This might be true, but please notice that it remained disturbingly high despite the deceleration in several subindexes, including the index for used cars. I dread to think what would be if these categories didn’t moderate!What’s more, the producer price index for final demand rose 1% in July (MoM) and 7.8% over the past 12 months, as one can see in the chart below. It was the largest advance since the 12-month data was first calculated in November 2010. Part of this increase could be passed on to consumers later, as companies have recently gained more ability to lift prices seeing weak resistance to price increases.Additionally, the index for shelter – the biggest component of the CPI, not hit by the pandemic as strongly as restaurants and hotels industries – has been rising gradually since February 2021, and it has accelerated to 2.8% in July. Last but not least, the US Senate passed Biden’s infrastructure plan, which could also add something to the inflationary pressure by an increase in the money supply. All these developments suggest that inflation isn’t going away just yet.Implications for GoldWhat does the recent inflation report imply for the gold market? Well, theoretically, softer inflation should be negative for gold, which is seen as an inflation hedge and which historically shined during periods of high and accelerating inflation.However, as the chart below shows, the price of gold has rebounded somewhat from last week’s low, gaining about $50 from Tuesday to Friday. It seems that steady (and partially below expectations) inflation gives the Fed room to maintain its ultra-dovish monetary policy. Indeed, according to the CME FedWatch Tool, the expectations for the Fed’s tightening cycle have diminished slightly from the previous week, which supported gold prices.However, a bullish hurray might be premature. Inflation is still high and significantly above the Fed’s target. Inflation expectations remain elevated, and some measures even increased slightly in July. Unfortunately, markets seem not to worry significantly about inflation any longer, and the stock market continues its rally.Even if inflation really softens later this year, which is likely given that some supply disruptions will probably resolve, it shouldn’t suddenly dive below 2%. So, the July report shouldn’t materially change the Fed’s stance, especially that the US central bank focuses more on the labor market now. Hence, gold investors should brace themselves for the upcoming tapering of quantitative easing.However, just as day comes after night, upward waves come after bearish trends. The most likely macroeconomic scenario is that inflation will remain high, while the economic growth will slow down, which means stagflation. Indeed, the downward trend in the bond yields – despite high inflation – could signal weak growth, requiring dovish monetary policies. If history is any guide, gold will shine during stagflation.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Fed to Taper This Year – What Are the Odds?

Fed to Taper This Year – What Are the Odds?

Finance Press Release Finance Press Release 19.08.2021 13:51
The latest FOMC minutes show that the Fed will likely taper quantitative easing this year. It’s largely priced in, but downside risks to gold remain.Yesterday, the FOMC published minutes from its last meeting in July. The publication is rather hawkish, as it shows growing appetite among the Fed officials for tapering the quantitative easing as early as this year:Looking ahead, most participants noted that, provided that the economy were to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal.The discussion about the tapering of the Fed’s asset purchases must have been the key point of July’s FOMC meeting, as it was reiterated later in the minutes with a similar conclusion:Most participants anticipated that the economy would continue to make progress toward those goals and, provided that the economy evolved broadly as they anticipated, they judged that the standard set out in the Committee’s guidance regarding asset purchases could be reached this year.Additionally, starting tapering sooner rather than later has several advantages, as it would help to manage the upward risk of the inflation outlook, giving the Fed the opportunity to hike the federal funds rate sooner, if needed. It would also allow the US central bank of a more gradual pace of tapering, reducing the risk of the taper tantrum:Several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace and that such a combination could mitigate the risk of an excessive tightening in financial conditions in response to a tapering announcement (…)Some participants suggested that it would be prudent for the Committee to prepare for starting to reduce its pace of asset purchases relatively soon, in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated and because an earlier start to reducing asset purchases would most likely enable additions to securities holdings to be concluded before the Committee judged it appropriate to raise the federal funds rate.What’s more, although FOMC participants decided that the economy had not yet achieved the Committee’s broad-based and inclusive maximum-employment goal, a majority of them stated that most of the negative factors which weighed on the employment growth would ease in the coming months, warranting the start of the tapering.Last but not least, the Fed seemed to become more hawkish on inflation. The staff considered the risks of the inflation projection to be tilted to the upside, while FOMC members started to see it as potentially more persistent than previously believed:Looking ahead, while participants generally expected inflation pressures to ease as the effect of these transitory factors dissipated, several participants remarked that larger-than-anticipated supply chain disruptions and increases in input costs could sustain upward pressure on prices into 2022.It seems that someone at the Fed has finally noted that inflation had jumped above 5%, as the chart below shows!Of course, there were also dovish parts, in particular related to the possibility that the spread of the Delta variant of the coronavirus would hamper the economic growth, or that the slack in the labor market could be greater than commonly believed. Thus, several participants emphasized that the Fed should be patient with tapering and that it would be better to start it early next year:Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labor market as not being close to meeting the Committee’s “substantial further progress” standard or because of uncertainty about the degree of progress toward the price-stability goal (…) Those participants stressed that the Committee should be patient in assessing progress toward its goals and in announcing changes to its plans on asset purchasesImplications for GoldWhat do the recent FOMC minutes imply for the gold market? Well, they came in, on balance, hawkish, so they should be negative for the yellow metal. However, the initial reaction was bullish. Perhaps investors were afraid that the minutes would be even more hawkish. The decline in equities could also fuel some safe-haven demand for gold. It’s worth noting that the reaction was rather muted, as the publication didn’t offer any groundbreaking revelations. It seems that next week’s annual Jackson Hole conference could provide more clues about the future US monetary policy.Having said that, the minutes clearly show that tapering is coming. The Fed could announce it as early as in September, as Dallas Fed President Robert Kaplan prefers, and start it later this year. So, precious metals investors should brace for the inevitable. Luckily, the Fed’s tightening cycle is largely priced in, but any unexpected acceleration in the pace of the monetary policy normalization could rattle the gold market.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Inflation Is Prone To Delta. The Same With Gold?

Inflation Is Prone To Delta. The Same With Gold?

Finance Press Release Finance Press Release 24.08.2021 16:47
Delta variant caused fresh supply-chain disruptions. Effects? Slower growth and higher inflation. Sounds like a perfect mix for gold!The Delta variant of the coronavirus is spreading all around the world. Although it won’t affect the world economy as much as the first wave of the pandemic, it will add to the already existing problems. Namely, the rising number of new cases will prolong the supply disruptions, hampering the GDP growth and strengthening the already high inflation (see the chart below).In particular, last week, the Ningbo-Zhousan port in eastern China was partially closed until further notice after its worker was infected with the Delta strain. The problem is that it’s the world’s third-busiest cargo port, so its closure will cause fresh pressure to the already disrupted shipping industry.The spread of the Delta variant and related disturbances in global trade have already caused Goldman Sachs to cut its forecasts for the US economy from 6.4% to 6% this year. “The impact of the delta variant on growth and inflation is proving to be somewhat larger than we expected”, the bank’s analysts explained in a note to the clients. The supply chain’s hurdles are expected to curb production and further raise prices, which would lower the purchasing power of consumers and limit their spending.It implies that high inflation will likely stay with us for longer than the Fed thinks, just as I’ve been saying for a long time. The current situation shows a disturbing resemblance to the 1970s. As you know, inflation was surging then, but the US central bank was downplaying it, blaming the temporary effects of the first oil shock. The result of such a careless stance was the Great Stagflation and the need to aggressively hike federal funds rate by Paul Volcker. Inflation was defeated, but a double-dip recession emerged.We also have a negative supply shock now (or, I should say, a series of shocks). It’s not an oil shock, but it’s also significant, as the issue broad-based — namely, the semiconductor shock and container shock, which hit all kinds of products. Semiconductors are key for the modern economy. They are used in various industries from consumer electronics to vehicles, and you practically cannot transport goods without containers. And as in the 1970s, the Fed believes that inflation is transitory and will go away on its own.Yeah. Maybe it would happen if we had to deal with the supply shocks only. But the economy has also been hit by demand shocks – i.e., by the surge in the broad money supply and fiscal deficits used to finance cash transfers to the citizens and generous unemployment benefits. All this adds to inflationary pressures.Implications for GoldWhat does all this mean for the gold market? Well, slower economic growth and higher inflation due to the spread of the Delta variant are good news for gold. It brings us closer to a stagflationary environment, which should be welcomed by the yellow metal. Although gold doesn’t always protect against inflation, it served as a good inflation hedge during the 1970s, so we could reasonably expect similar performance during the potential 2020s stagflation.Unfortunately, there is one big scratch in this picture: the Fed’s tapering of quantitative easing. More persistent inflation could mobilize inflation hawks to tighten monetary policy in a more rushed manner. As a result, the bond yields could increase, especially given that they are at very low levels, creating downward pressure on gold prices.Luckily, history teaches us that bond yields can increase in tandem with gold prices. As the chart below shows, this is what happened in the 1970s. After all, what really counts for the gold market is real interest rates, and they could stay at an ultra-low level or even decline further if inflation surges.Last but not least, the Delta variant is also likely to hamper economic growth. So, the Fed could actually become more dovish and postpone the end of its asset purchases, especially given that it has already expressed some concerns about the Delta spread. So, although the price of gold could decline further amid potential normalization in interest rates, inflation risk should provide some support or even materialize, pushing inflation itself higher.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Jackson Hole Ahead! What Should We Expect?

Jackson Hole Ahead! What Should We Expect?

Finance Press Release Finance Press Release 26.08.2021 16:39
Gold prices fluctuate around $1,800, waiting for signals from the Fed at Jackson Hole. Which way will we go after the conference?Finally! The price of gold returned above $1,800 this week, as the chart below shows. It’s a nice change after the slide in early August. Although gold has rebounded somewhat, bulls shouldn’t open the champagne yet. A small beer would be enough for now, as the yellow metal already retreated from $1,800 on Wednesday (the fact that gold was unable to stay above this level is rather disappointing).So, what is happening on the gold market and what are its prospects? Well, it seems that two narratives are competing with each other ahead of the Jackson Hole conference. The first one is that Powell could provide some clues about the Fed’s tightening cycle, signaling when the tapering would start and how this process would look like. In other words, after July’s FOMC minutes, which came in more hawkish than expected, some analysts expect another hawkish signal from the Fed this week. Gold may suffer due to this, although tapering of the quantitative easing is already priced in to a large extent.On the other hand, the recent rebound in gold prices might have been caused by investors positioning for a more dovish Fed than before. This is because of the Delta variant of the coronavirus, which is spreading quickly through the US, as the chart below shows.The rising number of new cases could soften the Fed’s stance or temper its tapering plans. Indeed, Minneapolis Fed President Neel Kashkari said that “COVID-19 delta variant matters a lot”, while Dallas Fed President Robert Kaplan admitted that he might “rethink his call for the Fed [to] start to taper its 120 billion per month and bond purchases if it looks like the spread of coronavirus Delta variant is slowing economic growth.” Of course, both presidents are not voting members of the FOMC this year, but their comments may still be indicative of the thinking within the Fed.After all, the US central bank says that it’s data-dependent, and some data seems to confirm recent worries about Delta’s impact on the GDP growth. For instance, the HIS Markit Flash U.S. Composite PMI Output Index declined from 59.9 in July to 55.4 in August. This means that U.S. business activity growth slowed for the third month in a row, partially due to Delta and softer consumer demand. The Fed’s more dovish tone and postponement should be positive for gold prices.Having said that, investors have to remember that Delta’s impact on the economy would be rather limited, as economic agents have already accommodated to the pandemic and nobody wants further lockdowns.Implications for GoldWhat does all this mean for the gold market? Well, the Jackson Hole conference might determine gold’s future direction, as many investors are waiting on the sidelines just to hear what Powell and other central bankers have to say. However, it’s also possible that this year’s symposium will be less impactful than expected. I mean, Powell could refrain from announcing any timeline of the Fed’s tightening cycle, preferring to wait until the FOMC September meeting when August non-farm payrolls are available and it is easier to assess the economic impact of Delta.However, the lack of hawkish action is dovish action. So, it’s possible that gold investors will find delight in Jackson Hole. However, this “a bit dovish scenario” might already be priced in, so a lot depends on the details of Powell’s speech. My bet is that he will point out both the economy’s strength and the threats of the Delta variant. Nonetheless, I don’t expect that Delta will radically change the Fed’s stance on tapering, so medium-term downward pressure on gold should remain intact.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Moves Above $1,800 After Jackson Hole

Gold Moves Above $1,800 After Jackson Hole

Finance Press Release Finance Press Release 31.08.2021 13:03
The Jackson Hole is over — we left it in the rearview mirror. Gold moved higher in an immediate reaction, but bullish joy may be premature.The 2021 Jackson Hole Economic Symposium “Macroeconomic Policy in an Uneven Economy” is already a thing of the past. It was a stimulating conference with a few interesting presentations. But the key appearance for the financial markets was Powell’s speech. Let’s dig into it!So, the Fed Chair started his remarks with the observation that even though the pandemic recession was the briefest yet deepest on record, the pace of the recovery has exceeded expectations. That being said, the economic expansion has been uneven, and its continuation is threatened by the Delta variant of the coronavirus, high inflation and the remaining slack in the labor market. However, Powell was generally optimistic about the future, saying that the prospects were good for continued progress toward maximum employment, while the elevated inflation would likely be temporary:The baseline outlook is for continued progress toward maximum employment, with inflation returning to levels consistent with our goal of inflation averaging 2 percent over time.Actually, Powell was so optimistic about the US economy that he stated that the criteria for tapering of the quantitative easing had been met. The key passage from his speech is as follows:We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance. My view is that the "substantial further progress" test has been met for inflation. There has also been clear progress toward maximum employment. At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.This passage is clearly hawkish, as it implies that the Fed will probably end its asset purchases this year if nothing bad happens.However, the price of gold futures increased on Friday (after Powell’s remarks) from around $1,790 to almost $1,820, as the chart below shows. Why? Well, it seems that the markets read between the lines and interpreted the Fed Chair’s speech as actually quite dovish, or less hawkish than expected.After all, Powell didn’t present any clear timeline of the Fed’s tightening cycle. Although the Fed Chair mentioned that it could be appropriate to start reducing the pace of asset purchases this year, he also noted some uncertainty about the spread of Delta and its economic aspect.What’s more, Powell reminded the public that the tapering doesn’t automatically imply hiking the federal funds rate, as raising interest rates would require much more progress towards the Fed’s goals:The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test. We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time. We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.So, we will not see higher interest rates anytime soon, despite higher inflation. This is clearly a dovish signal, and it supports gold prices. After all, the Fed’s monetary policy will remain accommodative, even after the start of tapering. The Fed will still be purchasing assets — the only difference is that it will do so at a slower pace, which means that its balance sheet will remain enormous (see the chart below), implying still large reinvestments of principal repayments.Implications for GoldWhat does it all mean for the gold market? Well, although Powell stated that the Fed’s test of “substantial further progress” had been met for inflation and suggested that it would soon be met for employment as well, his speech didn’t include any revolutionary insights. And, more importantly, it didn’t include any tapering statement. As a result, gold caught its breath.However, the bullish joy may be premature. The Fed is likely to taper this year, especially if August nonfarm payrolls prove to be strong. Also, the FOMC may issue a tapering statement after its September meeting, announcing the start of reducing the pace of asset purchases in the last quarter of the year. So, the downward pressure on gold prices could stay with us in 2021. On the other hand, the Fed clearly pointed out that the timeline for tapering is not the timeline for interest rates, which could stay at ultra-low levels for months, if not years, working in favor of gold.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Surging Home Prices and Gold – What’s the Link?

Surging Home Prices and Gold – What’s the Link?

Finance Press Release Finance Press Release 02.09.2021 14:17
US home prices are surging, increasingly raising worries about inflation. Could gold follow houses? If so, why?Home price growth in the US has accelerated even further, reaching a new record. The S&P/Case-Shiller U.S. National Home Price Index rose from 255.3 in May to 260.9 in June, boosting the annual percentage gain from 16.8% to 18.1%, as the chart below shows. That’s the largest jump since 1988 when the series began.Why is it so important? Well, for two reasons. First, such quick growth in home prices increases the risk of a housing bubble and all related economic problems. Please note that home prices are surging now even faster than in the 2000s, which ended in a financial crisis and the Great Recession.Second, rallying home prices add to the inflationary pressure. What’s important, this year’s impressive home inflation hasn’t shown up in the CPI yet. It will though, as increases in house prices translate into housing inflation, which lifts consumer price measures. This effect may be substantial, given that shelter represents one-third of the overall CPI and about 40% of the core CPI.Indeed, the recent research from the Dallas Fed, entitled “Surging House Price Expected to Propel Rent Increases, Push Up Inflation”, finds that rising housing prices are usually a leading indicator for rents that are included in the CPI. According to the authors, the correlation between house price growth and rent inflation is the strongest with about an 18-month lag. It means that rent inflation is likely to increase substantially over the next two years, contributing materially to consumer price indexes:Our forecasting model shows that rent inflation and OER inflation are expected to increase materially in 2022 and 2023. Given their weights in the core PCE price index (which excludes food and energy), rent and OER together are expected to contribute about 0.6 percentage points to 12-month core PCE inflation for 2022 and about 1.2 percentage points for 2023. These forecasts also suggest that rising inflation for rent and OER could push the overall and core PCE inflation rates above 2 percent in 2023, when current supply bottlenecks and labor shortages may have subsided.So, this research suggests that inflation could stay significantly above the Fed’s target in the coming years and that it might be more persistent than it’s widely believed by the central bankers and Wall Street. In other words, the Fed’s own research suggests that the US central bank might be wrong in claiming that inflation will prove to be temporary – after all, the core inflation is expected to stay above 2%, even when supply-side disruptions resolve.Importantly, soaring home prices are not the only factor adding to inflation worries. Another one is the fall in consumer confidence in August, partly because of stronger expectations of inflation. According to the Conference Board, consumers’ inflation expectations over the next year increased from 6.6% in July to 6.8% in August.Last but not least, inflation in the Eurozone has also surged recently. It soared from 2.2% in July to 3% in August, far above expectations and the ECB’s target. The global character of inflation (although it’s stronger in the US) suggests that it’s not caused merely by idiosyncratic factors (as Powell claims), but rather by the combination of supply-side disturbances and demand factors, such as an increase in the money supply entering the economy through consumer spending.Implications for GoldWhat does it all mean for the gold market? Well, rising home prices imply that inflation will be higher in the future than widely expected. Higher inflation could increase the demand for gold as an inflation hedge. It’s also the best guarantee that real interest rates will stay low, which should support gold. More persistent inflation increases the odds of stagflation, gold’s favorite macroeconomic environment.However, higher inflation could force the Fed to adopt a more hawkish stance and, for example, accelerate its tapering of quantitative easing, which could exert some downward pressure on gold. Actually, this is what is happening right now. Given high inflation, low bond yields and the US dollar in a sideways trend, gold seems undervalued to many analysts. On the other hand, the narrative about transitory inflation combined with the prospects of the Fed’s tightening cycle could make gold struggle.Having said that, gold has recently managed to return above $1,800 again, while September is historically a good month for gold. So, we will see – this month’s FOMC meeting could be crucial in determining the yellow metal’s path.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Bond Conundrum - Boom or Bust for Gold?

Bond Conundrum - Boom or Bust for Gold?

Finance Press Release Finance Press Release 03.09.2021 16:12
Inflation has risen, but bond yields have declined. Such a divergence is strange — beware gold bulls!Would you like to see something mysterious? If yes, please look at the chart below. It shows the yields on 10-year US Treasuries (red line) and CPI annual inflation rates (blue line) in recent years. As you can see, a huge divergence emerged this year: while inflation surged above 5%, nominal bond yields declined from 1.6% to 1.3%.Why is it so strange? Well, economic theory says that when inflation goes up, it erodes the purchasing power of bonds’ coupon payments. Thus, the price of bonds declines, and yields increase. In other words, when inflation accelerates, investors demand higher inflation premium to protect their real returns.But now we can observe rising inflation and declining bond yields at the same time. The yield on the 10-year Treasury is 1.3%, which is 4 percentage points below the inflation rate, so investors who buy bonds lose a lot of money in real terms. Something is clearly wrong here. Let’s solve this bond conundrum!The first potential explanation is that bond investors trust the Fed and believe that high inflation is mainly transitory. If so, the bond yields are more or less accurate and could stay around current low levels, and the inflation rates will adjust. The supply disruptions caused by the pandemic will eventually resolve, while the Fed is going to tighten its monetary policy, adding to disinflationary forces.At first glance, the scenario in which inflation is declining seems to be negative for the yellow metal, as it implies lower demand for gold as an inflation hedge. However, in this case, interest rates could stay at very low levels for a long time. And gold likes the environment of low yields.The second possible reason for the decline in interest rates is that bond investors expect slower economic growth than previously thought. Indeed, recent data suggests that the pace of GDP growth could be peaking. The spread of the delta variant of the coronavirus, smaller infrastructure plan than initially outlined, a slowdown in China’s economic growth and the Fed’s tightening cycle – all these factors could soften the US growth prospects, translating into lower yields.It goes without saying that this scenario would be very positive for gold prices. High inflation plus a slowdown in economic growth equals stagflation, a dream environment for gold. However, the stock market didn’t weaken, as one could expect after a downward revision of investors’ growth prospects. On the other hand, the spread between yields on 10-year and 2-year Treasuries has narrowed substantially since March, as the chart below shows. The flattening of the yield curve often indicates a slowdown in economic growth.But it’s also possible that technical factors or the central bank’s interventions trumped the fundamentals. Strong demand for the US Treasuries that pushed yields down despite rising inflation could be the case here. After all, the Fed has been purchasing $80 billion a month in Treasuries (and $40 billion in mortgage-backed bonds) since June 2020. In other words, quantitative easing could disrupt the functioning of the bond market.Indeed, the unprecedentedly easy monetary policy conditions with ultra-low interest rates and abundant liquidity could explain why both stock and bond prices are so high right now (and bond yields so low). In an environment of negative real interest rates created by Powell and his colleagues, asset managers search for yield in every possible asset, even if it is not economically viable — including cryptocurrencies that are just memes (like Dogecoin) or bonds with yields lower than inflation rates.What does it all imply for the gold market? Well, I have good and bad news. So, the bad news is that the real interest rates seem to be excessively low (see the chart below) and they are likely to move up over the economic expansion (especially when the Fed tightens its monetary stance), whereas inflation expectations could ease somewhat later this year. Unfortunately for gold bulls, the increase in the real interest rates would likely push gold prices lower.The good news is that that an increase in interest rates would put the governments and other debtors in a very difficult position, potentially leading to a debt crisis. Asset valuations could decline and financial crisis could follow suit. In other words, the Fed’s tightening cycle could sow the seeds of another recession and rally in gold.Having said that, we have just recovered from one economic crisis, and it will take some time for another to unfold. Until that happens, real interest rates may normalize somewhat without entailing substantial perturbations, which would be negative for gold prices.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Gold Back Below $1,800!

Gold Back Below $1,800!

Finance Press Release Finance Press Release 09.09.2021 16:35
Easy come, easy go. The yellow metal rallied on Friday just to plunge on Tuesday. What’s your next move, Mr. Gold?Ugh, the recent rally in gold prices was really short-lived. As the chart below shows, the price of gold increased after the publication of disappointing nonfarm payrolls on Friday. However, it declined as soon as on Tuesday, and on Wednesday it slid below $1,800.I have to admit that I expected a more bullish performance. To be clear: I was far from opening champagne. For instance, I pointed out that the tapering of quantitative easing remained on the horizon, and I expressed some worries that gold’s rally was rather moderate despite the big disappointment of job gains:Another caveat is that gold failed to rally above $1,835 despite softened expectations of the future path of the federal funds rateHowever, I thought that the likely postponement of the Fed’s tightening cycle in the face of weak employment data would allow gold to catch its breath for a while. Well, it did, but only for a few days.The quick reversal is clearly bearish for gold. Sure, without disappointing job numbers, the yellow metal could perform even worse. However, the inability to maintain gains indicates gold’s inherent weakness in the current environment.Of course, the recent decline in gold prices was at least partially caused by new developments in the financial markets, namely: the strengthening in the US dollar and the rise in the bond yields. So, one could say that earlier bullish news was simply outweighed by later bearish factors.However, please note that the US dollar strengthened and the interest rates rose amid an increase in risk aversion. The fact that gold, which is considered to be a safe-haven asset, drops when investors become more risk-averse, is really frustrating.What’s more, some analysts pointed out that the dollar strength and higher yields were not enough to account for the plunge in gold prices – so, it seems that the momentum is simply negative and gold wants trade lower, no matter the fundamentals.Indeed, neither the negative real interest rates, nor curbed dollar, nor high inflation were able to get gold to rise decisively this year. Nor the recent weak nonfarm payrolls that lifted the expectations of a more dovish Fed and the postponement of normalization of the monetary policy.Implications for GoldWhat does it all mean for the yellow metal? Well, the recent volatility in the gold market reminds us that in fundamental analyses it’s smart not to draw too far-reaching conclusions from the immediate price reactions and to look beyond the hustle and bustle of the trading pits. It also confirms that I was right, writing in the recent Fundamental Gold Report that “a long quiet summer has ended, and a more windy fall has started”.Now, I have to point out that fundamental factors turned out in recent days to be more positive for the gold market than a few weeks ago. The announcement of the Fed’s tapering will be likely postponed from September to November 2021. Indeed, yesterday’s remarks of the New York Fed President John Williams at St. Lawrence University suggest that the FOMC may continue its wait-and-see approach this month and taper later in 2021:There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met. Assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year.Meanwhile, the economic activity has slowed down, partially because of the spread of the Delta variant of the coronavirus. For example, the recent edition of the Beige Book says that:Economic growth downshifted slightly to a moderate pace in early July through August (…) The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.Given that inflation remains high, the slowdown in economic growth will push the economy into stagflation, which should be a positive macroeconomic environment for gold.Having said that, more bullish fundamentals without positive momentum could not be enough. As I’ve written earlier, gold has recently shrugged all the bullish factors off – it’s focused now on the economic normalization after the pandemic recession and the upcoming Fed’s tightening cycle. So, it seems to me that gold needs more than the postponement of tapering (think about next economic crises, the decline in economic confidence, or the abandonment of monetary policy normalization) to rally decisively. Until this happens, it is likely to continue its struggle.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Eurozone Impact on Gold: The ECB and the Phantom Taper

Eurozone Impact on Gold: The ECB and the Phantom Taper

Finance Press Release Finance Press Release 14.09.2021 14:13
The ECB tapered its asset purchases. Only that it didn’t taper at all. Are you confused? Gold isn’t – it simply doesn’t care.Tapering has begun. For now, in the Eurozone. This is at least what headlines suggest, as last week, the Governing Council of the European Central Bank held its monetary policy meeting. The European central bankers decided to slow down the pace of their asset purchases:Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters.The financial markets were only slightly moved by the ECB’s action. The price of gold also barely changed, as the chart below shows. One reason is that such a step was widely expected. Another one is that this “tapering” is actually “pseudo-tapering”, or not tapering at all. Why?The answer is: the ECB will continue to conduct net asset purchases under the Pandemic Emergency Purchase Programme with an unchanged total envelope of €1,850 billion. So, the total number of assets bought under this program won’t necessarily change, as the ECB could still spend all of the envelope. Only the pace will slow down, but please remember that it was boosted earlier this year. Hence, even Christine Lagarde admitted during her press conference that the ECB’s move was rather a “re-calibration of PEPP for next three months” than tapering.What’s more, the net purchases under the Asset Purchase Programme, the original quantitative easing program, will continue at an unchanged pace of €20 billion per month. Last but not least, the ECB left its interest rates unchanged. And it reiterated that it was not going to normalize interest rates anytime soon, even in the face of strong price pressure. In other words, the ECB signaled once again that it would tolerate higher inflation:In support of its symmetric two percent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two percent over the medium term. This may also imply a transitory period in which inflation is moderately above target.Implications for GoldWhat does the ECB’s last meeting imply for gold? Well, although Lagarde and her colleagues didn’t signal any further reduction of monetary accommodation, the slowdown in asset purchases under PEPP is a small step toward normalizing the monetary policy after the pandemic. Additionally, please note that the ECB’s September economic projections boosted both the expected pace of the GDP growth and inflation in the coming years, which should provide the bank more room for hawkish actions. In this context, the ECB could be seen as a shy harbinger of the withdrawal of emergency measures introduced during the epidemic. This is probably why the euro has strengthened slightly after the ECB meeting.However, the ECB remained very dovish in fact. It will just reduce the pace of asset purchases under PEPP, which was boosted earlier this year. And the European central bankers didn’t provide any timeline, nor any clues about the possible end of its quantitative easing programs. The Fed will also likely maintain its very accommodative stance, especially given the spread of the Delta variant of the coronavirus and the disappointing August nonfarm payrolls.Having said that, the recent comments from the Fed officials suggest that they are determined to start or at least announce tapering by the end of the year. For instance, St. Louis Fed President James Bullard said in an interview that “The big picture is that the taper will get going this year and will end sometime by the first half of next year”.Hence, the big picture for gold remains rather negative, as the prospects of the Fed’s tightening cycle could still exert downward pressure on gold. However, the actual beginning of the process, especially if accompanied by more dovish signals from the Fed than expected, could provide some relief for the yellow metal, in line with “sell the rumor, buy the fact”. My intuition is that 2022 may actually be better for gold than this year, but a lot will depend on the future economic developments, as well as the US central banks’ actions and communication. This week we will get fresh CPI data, and the FOMC will gather next week. Stay tuned!If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Softening Inflation: Gold Jumps Again

Softening Inflation: Gold Jumps Again

Finance Press Release Finance Press Release 16.09.2021 14:55
Inflation softened further in August, and gold reacted positively. Look closely at what the Fed’s doing, as that’s where the clues for the future are.Consumer inflation eased further in August. According to the latest BLS report on inflation, the CPI increased 0.3% last month after rising 0.5% in July. The core CPI, which excludes food and energy prices, also softened — it rose 0.1% after increasing 0.3% in the preceding month. It was the smallest increase since February 2021. The deceleration was mainly caused by declines in the index for used cars and trucks, which fell 1.5%, and in the index for transportation services, which decreased 2.3% (driven by a sharp fall of 9.1% in airline fares).However, on an annual basis, the overall inflation stayed practically unchanged, rising again at a disturbingly high pace, as the chart below shows. The overall index surged 5.3% in August, following 5.4% in the previous month. Meanwhile, the core CPI soared 4%, following a 4.3% jump in July.So, as one can see in the chart above, inflation peaked in June and decelerated for the second month in a row. However, what I wrote last month remains valid: “[inflation] remained disturbingly high, despite the deceleration in several subindexes, including the index for used cars. I dread to think what inflation would be if these categories weren’t moderate!”Inflation did soften, but it remains elevated and above 5% on an annual basis. Moreover, it doesn’t have to go away anytime soon. Why? The first reason is that the supply-chain crisis hasn’t ended yet. The supply-side problems are keeping the producer prices hot. In August, the PPI for final demand rose 0.7%, following 1% in July. Although the monthly pace decreased, it was still above expectations. But over the past 12 months, the producer price inflation soared 8.3%, significantly faster than 7.8% in July. It was the biggest jump since November 2010, when the series started, as the chart below shows.The unresolved supply-chain crisis and stubbornly high producer price inflation imply that inflationary pressures are likely to persist and to be translated into higher consumer prices in the future. Because inventories are tight and because the mindset has changed, producers are relatively easily passing on higher costs to consumers.Secondly, the index for shelter – the biggest component of the CPI – has been rising gradually since February 2021, and it accelerated from 2.79% in July to 2.82% in August, as the chart above shows. As a reminder, home prices – which are not covered by the CPI – have been surging recently, which should translate into further increases in the index for shelter.Last but not least, the annual growth of the M2 money supply has stabilized at about 12%, as the chart below shows. It’s of course much lower than the 27% recorded in February 2021, but it’s still almost twice as fast as the 6.8% seen just before the pandemic started. And the easy fiscal policy could also add something to the inflationary pressures if the fiscal deficits are monetized. All these developments suggest that inflation isn’t disappearing just yet.Implications for GoldWhat does the August report on the CPI imply for the gold market? Well, theoretically, softer inflation should be negative for assets sensitive to inflation such as gold. The yellow metal is seen as an inflation hedge, but the data says that it shines when inflation is high and accelerating. So, the deceleration should be bad news for gold.However, as the chart below shows, the price of gold has increased after the publication of the inflation report, jumping again above $1,800. Just as one month ago, slightly softer inflation has offered some hopes that inflation would prove to be transitory, in line with Powell’s narrative, and provide the Fed with an excuse to continue its ultra-dovish monetary policy. Indeed, according to the CME FedWatch Tool, the expectations for the Fed’s tightening cycle have diminished slightly from the previous week. For instance, the odds for the interest rate hike in December 2022 have declined from 54% to 50%, so it’s a coin toss. The softening of these expectations has supported gold prices.However, the dark clouds are still present on the horizon. Although the August CPI eases somewhat the need for the Fed to begin to taper its quantitative easing, the inflation report shouldn’t materially change the Fed’s stance. After all, inflation is still significantly above the target and partial normalization of the monetary policy is coming anyway.What’s more, this month the FOMC statement will be accompanied by a fresh dot-plot. As a reminder, the latest Fed’s projections plunged gold prices, as they revealed that the US central bankers were eager to hike the federal funds rate earlier than previously thought. Given the increase in inflation since June and all the employment progress the economy made, the upcoming dot-plots could be hawkish and send gold prices lower. You have been warned.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
FOMC Pushes Gold Prices Down

FOMC Pushes Gold Prices Down

Finance Press Release Finance Press Release 23.09.2021 16:04
Brace yourselves, gold bulls, as the Fed clears the way for tapering and shifts interest rate liftoff to 2022. You’ve been warned.Yesterday (September 22, 2021), the FOMC published its newest statement on monetary policy. There are just a few alterations in the publication, which mainly reflect changes in the economic environment. The Fed noted that the sectors most adversely affected by the pandemic “have improved in recent months, but the rise in COVID-19 cases has slowed their recovery”, while inflation “is elevated” (last time, the Fed wrote that “inflation has risen”).However, the most important change is, of course, the signal about a slowdown in the pace of asset purchases. The Fed acknowledged the economy’s progress towards the goals of price stability and maximum employment, and said that tapering of quantitative easing could soon be warranted:Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. Although this is not a revolution in the Fed’s thinking and it’s not a surprise for the markets, the move is hawkish. The statement shows that the US central bank is determined to begin tapering soon despite the weak non-farm payrolls in August. The Fed didn’t provide any date, but investors could expect an announcement in October or November and effective implementation by the end of this year.Thus, the statement is negative for the gold prices. However, the silver lining is that the FOMC decided to write “moderation” instead of simply “tapering”. For me, this particular phrasing sounds softer, which gives some hope that tapering will be very gradual. So, the Fed’s monetary policy would remain accommodative for quite a long time.September Dot-Plot and GoldNow, let’s move on to the Fed’s newest economic projections that accompanied the statement. As the table below shows, the FOMC expects slower GDP growth, higher unemployment rate and higher inflation this year compared to its June’s forecasts.To be more precise, the FOMC expects that the GDP will jump 5.9% in 2021, compared to the 7% rise expected in June. It’s still an impressive surge but significantly slower than it was expected just three months ago. So, it seems that the Fed has taken the negative impact of the spread of the Delta variant of the coronavirus into account. Similarly, the unemployment rate is forecasted to decrease to 4.8% instead of to 4.5% expected in the previous projections.Meanwhile, the US central bank has also increased its inflation outlook. The FOMC members believe now that the PCE inflation will jump 4.2% this year, compared to 3.4% seen in December. The core PCE inflation is also expected to rise faster, i.e., 3.7%, versus 3% projected previously. So, the Fed expects a slowdown in the GDP growth combined with acceleration in inflation, which sounds stagflationary at the margin. These forecasts, when analyzed alone, should be positive for gold prices.However, the US central bank also updated its forecast for the interest rates. And I don’t have good news. In the latest edition of the Fundamental Gold Report (September 16, 2021), I warned readers of hawkish changes in the expected path of the federal funds rate.Given the increase in inflation since June and all the employment progress the economy made, the upcoming dot-plots could be hawkish and send gold prices lower. You have been warned.And, indeed, according to the fresh dot plot, the FOMC considers one interest rate hike next year as appropriate at the moment. On top of that, the Fed sees three additional 25-basis points increases in 2023, and three more in 2024 (and more hikes later in the future). So, instead of two hikes in 2023, we have one upward move as soon as in 2022 and three more in the following year. It means that the curve of the expected federal funds rate has become much steeper, which could make gold struggle.Implications for GoldWhat do the latest FOMC statement and dot-plot imply for the gold market? Well, the Fed cleared the way to taper its asset purchase program and signaled that the first interest rate hike could occur sooner than expected. Not surprisingly, the price of gold declined in response to the shift in the timeline of the interest rates liftoff, in line with my expectations.When it comes to the future, I believe that when the dust settles, gold may find some short-term relief. However, my guess is that gold will struggle until the Fed’s tightening cycle is well underway.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Could See Tapering as Soon as November!

Gold Could See Tapering as Soon as November!

Finance Press Release Finance Press Release 28.09.2021 15:35
It’s Powell’s doing, as always... the Chair signaled that tapering could be announced as soon as next month. What does this mean for gold bulls?In the latest edition of the Fundamental Gold Report, I covered the FOMC’s newest statement on monetary policy and the dot-plot. I concluded that “gold will struggle until the Fed’s tightening cycle is well underway”. As the chart below shows, the yellow metal has been struggling for the most part of this year, and I don’t expect any shifts from that trend anytime soon.Now, it’s high time to analyze Powell’s press conference! In his prepared remarks, the Fed Chair offered a rather upbeat view on the US economy:Real GDP rose at a robust 6.4% pace in the first half of the year, and growth is widely expected to continue at a strong pace in the second half (…) Looking ahead, FOMC participants project the labor market to continue to improve.Powell also downplayed the inflationary risk. He acknowledged that inflation has stayed at a high level for longer than the Fed expected, but, at the same time, he reiterated the Fed’s view of the transitory nature of elevated inflation:These bottleneck effects have been larger and longer-lasting than anticipated, leading to upward revisions to participants’ inflation projections for this year. While these supply effects are prominent for now, they will abate, and as they do, inflation is expected to drop back toward our longer-run goal.However, the question is: why should we trust the Fed’s current inflation outlook, given that its previous forecasts were clearly wrong and underestimated greatly the real persistence of inflation?Last but not least, Powell offered more clues about tapering of quantitative easing. Although no decision has yet been made, “participants generally view that, so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate”. So, my conclusions would be: given that tapering is said to be very gradual, it’s likely that it will start sooner rather than later.Powell and GoldIndeed, the Q&A session suggests that the Fed could announce tapering as soon as November. It all depends on whether the substantial further progress test for employment will be met or not. For Powell it is now “all but met”, even though it could happen as soon as the next meeting. After all, many of the FOMC members believe that this test has already been met:So if you look at a good number of indicators, you will see that, since last December when we articulated the test and the readings today, in many cases more than half of the distance, for example, between the unemployment rate in December of 2020 and typical estimates of the natural rate, 50 or 60 percent of that road has been traveled. So that could be substantial further progress. Many on the Committee feel that the substantial further progress test for employment has been met. Others feel that it's close, but they want to see a little more progress. There's a range of perspectives. I guess my own view would be that the test, the substantial further progress test for employment is all but met. And so once we've met those two tests, once the Committee decides that they've met, and that could come as soon as the next meeting, that's the purpose of that language is to put notice out there that could come as soon as the next meeting. The Committee will consider that test, and we'll also look at the broader environment at that time and make a decision whether to taper.It seems as though the only condition to be yet fulfilled is that the September employment report has to be “decent”. It doesn’t have to be fantastic, but it can’t be a disaster. Powell says:So, you know, for me, it wouldn't take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met. And others on the Committee, many on the Committee feel that the test is already met. Others want to see more progress. And, you know, we’ll work it out as we go. But I would say that, in my own thinking, the test is all but met. So I don’t personally need to see a very strong employment report, but I’d like it see a decent employment report.Implications for GoldWhat does Powell’s press conference imply for the gold market? Well, the Fed Chair sounded generally hawkish. He was rather optimistic about the GDP growth and progress in the labor market. Powell also downplayed risks related to Evergrande’s indebtedness.And, most importantly, he signaled that tapering could be announced as soon as November, as many FOMC members believe that the substantial progress towards the Fed’s goal has been already achieved. This is bad news for gold prices.There is, however, a silver lining. There will be no interest rate hikes while the Fed is tapering. So, the real interest rates should stay at ultra-low levels, providing some support for the yellow metal.Having said that, the dot-plot shows that half of FOMC members forecast the first interest rate hike by the end of next year. As a consequence, the market odds for the liftoff in December 2022 increased from 52.9% on September 16 to 72.7% on September 23, 2021. If the federal funds rate goes the hawkish way, it should continue to create downward pressure on gold prices.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Have We Bought a Golden Ticket to the 1970s?

Have We Bought a Golden Ticket to the 1970s?

Finance Press Release Finance Press Release 01.10.2021 17:31
It turned out that time travel is possible, after all. All you need is reckless monetary policy and, boom, you are back in the 1970s. Gold seems to like such voyages!Have you ever dreamed about time travel? Now it’s totally possible, courtesy of the Federal Reserve. Thanks to its dovish monetary policy, we are going back to the 1970s. Just as fifty years ago, the US central bank is letting inflation rise, claiming that the employment goal is much more important and that the Philips Curve has flattened. In the 1970s, they thought similarly, but it turned out that you can overheat the economy, after all! And just as Arthur Burns half a century ago, Jerome Powell believes that inflation is caused only by a few particular categories, and it will prove to be transitory.I’ve been pointing out these disturbing parallels for months. Now, as Kenneth Rogoff, Professor at Harvard University, noted, with the US humiliating exit from Afghanistan and the fall of Kabul, the similarities between the 1970s and the 2020s are growing. Other dangerous resemblances are relative fast growth in the money supply (see the chart below), fiscal deficits, and the presence of supply-side shocks (but instead of oil shocks we suffer from semiconductor shock and disruptions in other supply chains).Rogoff also points out some important differences, namely, the independent central bank readiness to hike the federal funds rate if inflation gets out of control, and much lower interest rates that provide the Treasury with room for its lax spending.There is a grain of truth in Rogoff’s claims. The central bank’s independence is much more strongly established, and Powell is a far cry from Burns who was submissive to President Nixon. However, please note that both private and public debts are much higher than fifty years ago. This mammoth pile of debt makes interest rate hikes much more politically painful. The high indebtedness is already a reason why the Fed maintains a dovish stance and will normalize its monetary policy at very a gradual pace.Remember the Fed’s recent attempts to roll back quantitative easing and bring interest rates back to more normal levels? The economic slowdown and the repo crisis forced the Fed to cut the federal funds rate again and return to the asset purchases. It was in 2019, much before the pandemic started. So, never underestimate the power of the debt trap!What does it all mean for gold? Well, if we are really going into the 1970s, gold could be one of the biggest winners. The yellow metal enjoyed a bull market then, so a similar positive scenario could replay now.Although, fifty years ago the US economy entered stagflation, i.e., a period of high inflation and economic stagnation. The current situation is clearly not so bad — inflation is lower than in the 1970s, while the GDP growth is positive. However, the recent slowdown in economic growth, despite massive monetary and fiscal stimulus, suggests that a mini-stagflation may be underway. The spread of the Delta variant of the coronavirus hampers the economic growth, and both monetary and fiscal policies remain loose, contributing to the upward price pressure.If the Fed’s story about transitory inflation is wrong, it will need to tighten its policy more decisively than expected. An abrupt tightening cycle could be negative for gold prices, as the yellow metal prefers an environment of low bond yields. However, aggressive steps to combat inflation could also cause a plunge in the prices of risky assets or even a financial crisis. So, if the Fed stays long behind the curve, gold should ultimately benefit – either from accelerating inflation or from the Fed’s harsh tightening triggering a sovereign debt crisis or an economic crisis (as a reminder, Paul Volcker contained inflation, but the US economy entered into a recession).Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Inflation Finally Meets Wall Street’s Ears! Is Gold Next?

Inflation Finally Meets Wall Street’s Ears! Is Gold Next?

Finance Press Release Finance Press Release 07.10.2021 15:50
At last, something is happening! Rising oil and gas prices sparked inflation worries among investors. However, gold hasn’t benefited so far…It took Wall Street a while to find out about inflation above 5%, but it seems that investors have finally noticed that we live now in a world of elevated inflation. I have always known that only the smartest minds work on Wall Street! So, right after they finally learned how to operate a computer and found the BLS website, they got scared and started selling equities. As a consequence, the U.S. stock index futures declined yesterday morning.All right, I was a bit mean to the Wall Street traders. They panicked not because of the CPI rates but because of soaring oil prices. As the chart below shows, the WTI crude oil has recently approached $80 per barrel, while the price of natural gas has more than doubled in recent weeks (left axis). A propos, if you want to know more about oil, gas and the energy sector, as well as keep track of all price moves happening there (and possibly profit from them!), I can recommend a great place to do so - Oil Trading Alerts.The rising oil prices triggered inflation worries, as higher energy prices could translate into higher consumer inflation, and higher consumer inflation could trigger a more hawkish Fed’s action than previously anticipated. In particular, the US central bank could taper its quantitative easing faster than expected, especially if September nonfarm payrolls turn out to be decent. After all, good news is right now bad news for stocks, not to mention gold.I’ve been warning for a long time now that inflation could be more lasting than the pundits claim. And here we are, the high inflation readings couldn’t be downplayed any longer, so the IMF admitted yesterday in its flagship report World Economic Outlook that elevated inflation could last by mid-2022:Headline inflation is projected to peak in the final months of 2021, with inflation expected back to pre-pandemic levels by mid-2022 for both advanced economies and emerging markets country groups, and with risks tilted to the upside.However, the baseline scenario assumes that inflation expectations remain anchored. And although the IMF is right that market-based measures of long-term inflation expectations have stayed relatively anchored so far, the measures based on surveys of consumers have clearly de-anchored recently, as the chart below shows.I don’t know on which planet IMF economists live, but in my world such a graph shows anything but well-anchored inflation expectations. So, I would say that upside risks to the IMF’s baseline scenario are more probable than the authors are willing to admit. In fact, even they acknowledge that risks remain tilted slightly to the upside over the medium term:Sharply rising housing prices and prolonged input supply shortages in both advanced economies and emerging market and developing economies, and continued food price pressures and currency depreciations in the latter group could keep inflation elevated for longer.Implications for GoldWhat does it all imply for the gold market? Well, as usual, I’m obliged to say that, theoretically, higher inflation should be positive for gold, which is considered to be an inflation hedge. However, theoretical links, which we can analyze in isolation, in reality work together with other forces, as economy is a complex system. In our case, gold is not getting much benefit from strengthening inflation worries as bond yields are rising in tandem, supporting the real interest rates. Gold’s disappointing performance in the inflationary environment (see the chart below) is also caused by the prospects of the Fed’s tightening cycle.So, it seems that gold could remain in the downward trend in the near future, especially if the Employment Situation Report, which is scheduled to be released on Friday, doesn’t disappoint. However, the Fed will have to reverse its course at some point –they will not hesitate whether they should fight with the overheating or stimulate the economy during a crisis. And this will allow gold to shine again.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold & the USDX: Correlations

Gold Can’t Rise on Weak Payrolls

Finance Press Release Finance Press Release 12.10.2021 15:56
The US economy added only 194,000 jobs in September, falling short of expectations, but the Fed can still taper soon — and gold knows it.Another disappointment from the economy! The September nonfarm payrolls came surprisingly weak. As the chart below shows, the US labor market added only 194,000 jobs last month, much below the expectations (analysts forecasted about half a million added jobs). The disappointing numbers followed the additions of 1,091,000 in July and 366,000 in August (after an upward revision). The most recent job gains were the weakest since December 2020.However, the overall report was generally more positive than the headline. First of all, the unemployment rate declined from 5.2% to 4.8%, as the chart above shows. It’s a positive surprise, as economists expected a drop to only 5.1%. In absolute terms, the number of unemployed people fell by 710,000 - to 7.7 million. It’s a considerably lower level compared to the recessionary peak, but still significantly higher than before the pandemic (5.7 million and unemployment rate of 3.5%).Second, taking revisions into account, the employment in July and August combined is 169,000 higher than previously reported. It means that the monthly job growth has averaged 561,000 so far this year and about 550,000 over the last three months.Third, the main reason for the very weak nonfarm payrolls was a decline in local and state government education - by 161,000. Most back-to-school-hiring typically occurs in September, but the recruitment last month was lower than usual, which some analysts attribute to early retirement of some teachers, mask-wearing mandates and vaccination requirements. Another issue is that the report is based on data that was collected when the Delta variant of the coronavirus was reaching its peak, and now the situation looks better.Implications for GoldWhat does the recent employment report imply for the Fed’s monetary policy and the gold market? Well, Fed Chair Jerome Powell told reporters during his press conference in September that he would like to see a “reasonably good” or “decent” employment report before deciding that the Fed’s threshold for reducing its asset purchasing program has been met.So, you know, for me, it wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met. And others on the Committee, many on the Committee feel that the test is already met. Others want to see more progress. And, you know, we’ll work it out as we go. But I would say that, in my own thinking, the test is all but met. So I don’t personally need to see a very strong employment report, but I’d like it see a decent employment report.Now, the question is whether 194,000 job gains are decent enough to taper the quantitative easing. Interpreting words of an oracle is never an easy task. The September payrolls are neither strong nor a catastrophe. However, given the level of expectations and the fact that job gains were weaker than in August (commonly considered a great disappointment) I wouldn’t describe the latest payrolls as “decent”.However, we have to remember that the overall report was much better than the payrolls analyzed in isolation. Given the significant decline in the unemployment rate, the September employment report can be defended as “decent”. So, the Fed can still taper in November, or announce it at least, especially that some members of the FOMC were ready to tighten US monetary policy already in September.It seems that my line of thinking is in line with the market’s interpretation of the Fed’s likely course of action. The price of gold jumped briefly on Friday above $1,780, but it could not break the resistance or hold this position and returned quickly to its recent comfort zone of $1,750-1,760. The rather shy reaction of the yellow metal can be seen on the chart below.Gold’s inability to shine in response to the second weak nonfarm payrolls in a row or to the inflation worries is quite disappointing. Well, Mr. Market decided that the September employment report wouldn’t restrain the Fed from tapering. The focus on the upcoming tightening cycle creates downward pressure on gold prices, which counterweighs worries about the labor market or inflation.However, it might be the case that the price of the yellow metal will bottom somewhere around the actual start of tapering, and, without all that pressure around the tapering announcement, it could be free to move upward again.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
When Will the Party End?

When Will the Party End?

Michael Pento Michael Pento 04.02.2021 16:45
When Will the Party End? I’d like to explain why these already-stretched markets could crash by the start of the 3rd quarter. I’ve been warning over the past month, or about, that my Inflation/Deflation and Economic Cycle Model SM is forecasting a potential crash in equities around the start of Q3 this year. Of course, this timing could change and I would only take action in the portfolio if the Model validates this forecast to be correct. Nevertheless, here’s why the bubble we are currently riding higher in the portfolio could burst around that time. During the late Q2 early Q3 timeframe the following macroeconomic conditions will be occurring: The second derivative of y/y growth and inflation will be surging. As a direct consequence, Bond yields will be surging Whatever tax increases to pay for the Biden administration’s stimulus packages should have been passed. The next trillion-dollar COVID stimulus package will be months in the rear-view mirror and the $900 billion package signed by Trump in late December will be even further behind. The chatter around Fed tapering its $120 billion per month bond purchase program will then reach a crescendo. Just look how the market sold off today on just a routine Fed meeting—one without the spiking inflation yet to come. By the way, Mr. Powell reinforced his record-breaking easy monetary policy. Finally, the COVID vaccines will be close to reaching maximum distribution and their genuine efficacy and effect on the economy will then be known. If the vaccines work anywhere near as advertised, Powell indicated in his press conference today that it would be a strong catalyst towards normalizing monetary policy. Hence, the economy will then realize its maximum re-opening status--thus, putting further upward pressure on interest rates. To sum up: we will have higher taxes, much higher interest rates and rapidly rising inflation. All this will occur at the same time the market will be worrying about front-running the Fed’s exit from record manipulation of bond and stock prices. There will be immense pressure on the Fed to cut back on monetary stimulus at exactly the wrong time: the cyclical peak of economic growth. Indeed, the ROC in growth will be on the precipice of rapidly falling during late Q3 and Q4 because of waning fiscal stimulus, the threat of reduced monetary stimulus and interest rates that are becoming intractable. This will leave Mr. Powell with a huge problem. If the stock and bond prices are already crashing due to inflation (while the Fed Funds Rate is already at 0% and QE is at a record high rate, then the Fed won’t be automatically able to save the day by instituting more QE and rate cuts. While it is true that a central banker can easily fix a bear market caused by recession and deflation--simply by pledging to create more inflation--it cannot easily arrest a bear market if it is caused by spiking rates and inflation. Powell may be rendered powerless to stop the market from plunging precipitously. It may only be in the wake of the carnage of a deflationary depression that Powell’s potential move to buy stocks has any real benefit. Only then will his printing press become effective. Alas, that will be way too late for those who suffered going over the cliff and the multiple years you have to wait to make up the loss. PPS will try to protect our gains and profit from the coming gargantuan reconciliation of asset prices. In contrast, the deep state of Wall Street will buy and hold your retirement account into the abyss.
Netflix Stock (NFLX) Ahead Of Important Data, XAUUSD Chart's Reduced Amplitudes - Swissquote's MarketTalk

Inflation to the Moon - Gold Wears a Space Suit!

Arkadiusz Sieron Arkadiusz Sieron 11.11.2021 16:06
  Inflation rears its ugly head, surging at the fastest pace since 1990. The yellow metal has finally reacted as befits an inflation hedge: went up. Do you know what ambivalence is? It is a state of having two opposing feelings at the same time –this is exactly how I feel now. Why? Well, the latest BLS report on inflation shows that consumer inflation surged in October, which is something I hate because it lowers the purchasing power of money, deteriorating the financial situation of most people, especially the poorest and the least educated who don’t know how to protect against rising prices. On the other hand, I feel satisfaction, as it turned out that I was right in claiming that high inflation would be more persistent than the pundits claimed. After the September report on inflation, I wrote: “I’m afraid that consumer inflation could increase even further in the near future”. Sieron vs. Powell: 1:0! Indeed, the CPI rose 0.9% last month after rising 0.4% in September. The core CPI, which excludes food and energy prices, accelerated to 0.6% in October from 0.1% in the preceding month. And, as the chart below shows, the overall CPI annual rate accelerated from 5.4% in September to 6.2% in October, while the core CPI annual rate jumped from 4% to 4.6%. This surge (and a new peak) is a final blow to the Fed’s fairy tale about transitory inflation. As one can see in the chart above, the CPI rate has stayed above the Fed’s target since March 2021, and it won’t decline to 2% anytime soon. This contradicts all definitions of transitoriness I know. What’s more, the October surge in inflation was not only above the expectations – it was also the biggest jump since November 1990, as the chart below shows. Unfortunately for Americans, it might not be the last word of inflation. This is because over 80% of CPI subcomponents were above the Fed’s target of 2%, which clearly indicates that high inflation is not caused merely by the reopening of the economy but also by the broad-based factors such as the surge in the money supply.   Implications for Gold Ladies and gentlemen, gold finally reacted to surging inflation! As the chart below shows, the price of gold (Comex futures) spiked from below $1,830 to above $1,860 after the BLS report on CPI. Why did gold finally notice inflation and react as a true inflation hedge? Well, it seems that the narrative changed. Until recently, investors believed the Fed that inflation would be transitory. Reality, however, has disproved this story. Another factor I would like to mention is the FOMC’s recent announcement of tapering of its quantitative easing. That event removed some downward pressure from the gold market. By the way, this is something I also correctly predicted in the Fundamental Gold Report that commented on September inflation report: “it seems that until the Fed tapers its quantitative easing, gold will remain under downward pressure. Nonetheless, when it finally happens, better times may come for gold.” Indeed, yesterday’s rally suggests that gold recalled its function as a hedge against inflation. Until today, I was cautious in announcing the breakout in the gold market, as the yellow metal jumped above $1,800 only recently. However, the fact that gold managed not only to stay above $1,800 but also to continue its march upward (in tandem with the US dollar!) suggests that there is bullish momentum right now. Having said that, investors should remember about the threat of a more hawkish Fed. Higher inflation could support the monetary hawks within the FOMC and prompt the US central bank to raise interest rates sooner rather than later. The prospects of a tightening cycle could weigh on gold. However, as long as investors focus stronger on inflation than on tightening of monetary policy, and as long as the real interest rates decrease, or at do not increase, gold can go up. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Biden Signs a Bill to Revive Infrastructure… and Gold!

Biden Signs a Bill to Revive Infrastructure… and Gold!

Arkadiusz Sieron Arkadiusz Sieron 16.11.2021 14:13
Gold rallied thanks to the changed narrative on inflation, and Biden’s infrastructure plan can only add to the inflationary pressure. Huge price moves ahead? I have a short quiz for you! What the government should do to decrease inflation that reached the highest level in 30 years? A) Decrease its expenditure to make room for the Fed to hike the federal funds rate. B) Press the US central bank to tighten its monetary policy. C) Deregulate the markets and lower taxes to boost the supply side of the economy. D) Introduce a huge infrastructure plan that will multiply spending on energy, raw materials, and inputs in general. Please guess which option the US government chose. Yes, the worst possible. Exam failed! At the beginning of November, Congress passed a bipartisan infrastructure bill. And President Biden signed it on Monday (November 15, 2021). To be clear, I’m not claiming that America doesn’t need any investment in infrastructure. Perhaps it needs it, and perhaps it’s a better idea than social spending on unemployment benefits that discourage work. I don’t want to argue about the adequacy of large government infrastructure projects, although government spending generally fails to stimulate genuine economic growth and governments rarely outperform the private sector in effectiveness. My point is that $1.2 trillion infrastructure spending is coming at the worst possible moment. The US economy is facing supply shortages and high inflation caused by surging demand, which choked the ports and factories. In short, too much money is chasing too few goods, and policymakers decided to add additional money into the already blocked supply chains! I have no words of admiration for the intellectual abilities of the members of Congress and the White House! Indeed, the spending plan does not have to be inflationary if financed purely by taxes and borrowing. However, the Fed will likely monetize at least part of the newly issued federal debt, and you know, to build or repair infrastructure, workers are needed, and steel, and concrete, and energy. The infrastructure spending, thus, will add pressure to the ongoing energy crisis and high producer price inflation, not to mention the shortage of workers. Implications for Gold What does the passing of the infrastructure bill imply for the gold market? Well, it should be supportive of the yellow metal. First, it will increase the fiscal deficits by additional billions of dollars (the Congressional Budget Office estimates that the bill will enlarge the deficits by $256 billion). Second, government spending will add to the inflationary pressure, which gold should also welcome. After all, gold recalled last week that it is a hedge against high and accelerating inflation. As the chart below shows, gold not only jumped above the key level of $1,800, but it even managed to cross $1,850 on renewed inflation worries. The infrastructure bill was probably discounted by the traders, so its impact on the precious metals market should be limited. However, generally, all news that could intensify inflationary fears should be supportive of the yellow metal. You see, the narrative has changed. So far, the thinking was that higher inflation implies faster tapering and interest rates hikes and, thus, lower gold prices. This is why gold was waiting on the sidelines for the past several months despite high inflation. Investors also believed that inflation would be transitory. However, the recent CPI report forced the markets to embrace the fact that inflation could be more persistent. What’s more, tapering of quantitative easing started, which erased some downward pressure on gold. Moreover, despite the slowdown in the pace of asset purchases, the Fed will maintain its accommodative stance and stay behind the curve. So, at the moment, the reasoning is that high inflation implies elevated fears, which is good for gold. I have always believed that gold’s more bullish reaction to accelerating inflation was a matter of time. It’s possible that this time has just come. Having said that, investors should remember that market narratives can change quickly. At some point, the Fed will probably step in and send some hawkish signals, which could calm investors and pull some of them out of the gold market. My second concern is that gold could have reacted not to accelerating inflation, but rather to the plunge in the real interest rates. As the chart below shows, the yields on 10-year TIPS have dropped to -1.17, a level very close to the August bottom. When something reaches the bottom, it should rebound later. And if real interest rates start to rally, then gold could struggle again. However, I’ll stop complaining now and allow the bulls to celebrate the long-awaited breakout. It’s an interesting development compared to the last months, that’s for sure! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Crypto pullback continues as market cap nears $2.5 Trillion once again

Crypto pullback continues as market cap nears $2.5 Trillion once again

Walid Koudmani Walid Koudmani 19.11.2021 13:59
Crypto pullback continues as market cap nears $2.5 Trillion once again While the Crypto market continues to experience increased volatility in recent days, with Bitcoin still unable to interrupt a 10 day series of losses, we are seeing investor confidence being shaken with the total market capitalization dropping once again to the $2.5 Trillion range after nearing $3 Trillion just days ago. Despite no major fundamental news causing a reaction, Bitcoin dropped around 20% from the high reached on November 10th and is hovering near $56,000 while the majority of Alt-coins have experienced drops of 10-20%. This further emphasises the volatile nature of these assets which have experienced significant price fluctuations despite a lack of major drivers but also reaffirms the potential for them to rebound substantially as we have seen several times in the past. All in all, the situation is quite complex and while some may be expecting the downward move to continue, it is important to look at the other side of the matter where one can see that even on red days, there are several cryptos that are trading higher.  Investors await potential Biden Fed chairman decision Many investors are going to be paying close attention to today’s potential announcement from the United States as president Biden is set to decide on his nomination for head of the Federal reserve to possibly replace Jerome Powell. The Fed has played a key role in supporting the markets during the post-pandemic recovery with its extensive quantitative easing program and record low interest rates, but today’s decision may cause some nervousness as replacing the chairman of the US central bank could add to the unpredictability the markets are facing nowadays. While president Biden may wait till after market close to make his announcement, in an attempt to not shake up markets before the weekend, the fact remains that such a significant change at high levels of leadership could have far reaching implications for monetary and fiscal policy moving forward. Download our Mobile Trading App:   Google Play   App Store  
The Fed Worries About Inflation. Should We Worry About Gold?

The Fed Worries About Inflation. Should We Worry About Gold?

Arkadiusz Sieron Arkadiusz Sieron 30.11.2021 16:43
Oops!... Gold did it again and declined below $1,800 last week. What’s happening in the gold market? Did you enjoy your roast turkey? I hope so, and I hope that its taste – and Thanksgiving in general – sweetened the recent declines in gold prices. As the chart below shows, the price of the yellow metal (London P.M. Fix) plunged from above $1,860 two weeks ago to above $1,780 last week. It has slightly rebounded since then, but, well, only slightly. What exactly happened? Funny thing, but actually nothing revolutionary. After all, the reappointment of the same man as the Fed Chair and the publication of the FOMC minutes from the meeting that had already took place earlier in November, were the highlights before Thanksgiving. Well, sometimes lack of changes is a change itself and information about the past can shed some light on the future. Let’s start from Powell’s renomination for the second term as the Federal Reserve chair. In response, the market bets that the Fed will hike interest rates more aggressively in 2022 have increased. At first glance, the strong investors’ reaction seems strange, given that the monetary policy shouldn’t radically change with Powell still at the helm. However, the continuation of Powell’s leadership implies that Lael Brainard, regarded as more dovish than Powell, won’t become the new Fed Chair – what was expected by some market participants. Hence, the dovish scenario won’t materialize, which is hawkish for gold. Just two days later, the FOMC revealed the minutes from its November meeting. The main message – the Fed decided to taper its quantitative easing – was, of course, included in the post-meeting statement. The minutes revealed, however, that the Fed officials had become more worried about inflation and had expressed a more hawkish stance than the statement suggested. First of all, we learned from the minutes that some central bankers opted for more aggressive tapering and a more flexible approach that would allow for adjustments in the face of high and persistent inflation: Some participants preferred a somewhat faster pace of reductions that would result in an earlier conclusion to net purchases (…). Some participants suggested that reducing the pace of net asset purchases by more than $15 billion each month could be warranted so that the Committee would be in a better position to make adjustments to the target range for the federal funds rate, particularly in light of inflation pressures. Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee's objectives (…) participants noted that the Committee would not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives. This is because the FOMC members’ concerns about inflation strengthened. As we can read in the minutes, They indicated that their uncertainty regarding this assessment had increased. Many participants pointed to considerations that might suggest that elevated inflation could prove more persistent. These participants noted that average inflation already exceeded 2 percent when measured on a multiyear basis and cited a number of factors—such as businesses' enhanced scope to pass on higher costs to their customers, the possibility that nominal wage growth had become more sensitive to labor market pressures, or accommodative financial conditions—that might result in inflation continuing at elevated levels. Last but not least, the Fed officials also made other hawkish comments. Some participants argued that labor force participation would be lower than before the pandemic because of structural reasons. It implies that we are closer to reaching the “full employment”, so monetary policy could be less accommodative. What’s more, “some participants highlighted the fact that price increases had become more widespread”, while a couple of them noted possible signs that inflation expectations had become less anchored. So, the Fed officials’ worries about inflation strengthened. Implications for Gold What does it all imply for the gold market? Well, both the reappointment of Powell as the Fed Chair and the latest FOMC minutes were interpreted as hawkish, which pushed gold prices down. The more upbeat prospects for monetary tightening are clearly negative for the yellow metal, as they boosted the bond yields (see the chart below). This is something I warned investors against earlier this month. I wrote in the Fundamental Gold Report on November 16 that “when something reaches the bottom, it should rebound later. And if real interest rates start to rally, then gold could struggle again.” This is exactly what happened. Later, in the article on November 18, I added that “I will feel more confident about the strength of the recent rally when gold rises above $1,900”. Well, gold failed to do this, so I’m not particularly bullish on gold right now. We could say that gold did it again: it played with the hearts of gold bulls but got lost in the game, as it didn’t resist the pressure. Yes, the new Omicron variant of coronavirus has been noted, and uncertainty about this strain could provide short-term support for the yellow metal. However, it seems that the prospects of monetary tightening and higher real interest rates will continue to put downward pressure on gold prices. I agree, the rally looked refreshing after months of disappointment. However, it seems that we have to wait longer, possibly for the start of the Fed’s increasing the interest rates, to see gold truly shining. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Hawks Triumph, Doves Lose, Gold Bulls Cry!

Hawks Triumph, Doves Lose, Gold Bulls Cry!

Arkadiusz Sieron Arkadiusz Sieron 02.12.2021 17:20
The hawkish revolution continues. Powell, among the screams of monetary doves, suggested this week that tapering could be accelerated in December! People live unaware that an epic battle between good and evil, the light and dark side of the Force, hard-working entrepreneurs and tax officials is waged every day. What’s more, hawks and doves constantly fight as well, and this week brought a victory for the hawks among the FOMC. The triumph came on Tuesday when Fed Chair Jerome Powell testified before Congress. He admitted that inflation wasn’t “transitory”, as it is only expected to ease in the second half of 2022. Inflation is therefore more persistent and broad-based than the Fed stubbornly maintained earlier this year, contrary to evidence and common sense: Generally, the higher prices we’re seeing are related to the supply and demand imbalances that can be traced directly back to the pandemic and the reopening of the economy. But it’s also the case that price increases have spread much more broadly and I think the risk of higher inflation has increased. Importantly, Powell also agreed that “it’s probably a good time to retire that word.” You don’t say! Hence, the Fed was wrong, and I was right. Hurray! However, it’s a Pyrrhic victory for gold bulls. This is because the recognition of the persistence of inflation pushes the Fed toward a more hawkish position. Indeed, Powell suggested that the FOMC participants could discuss speeding up the taper of quantitative easing in December: At this point the economy is very strong and inflationary pressures are high and it is therefore appropriate, in my view, to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner, and I expect that we will discuss that at our upcoming meeting in a couple of weeks. What’s more, Powell seemed to be unaffected by the Omicron coronavirus strain news. He was a bit concerned, but not about its disturbing impact on the demand side of the economy; he found supply-chain disruptions that could intensify inflation way more important. That’s yet another manifestation of Powell’s hawkish stance.   Implications for Gold What does the Fed’s hawkish tilt imply for the gold market? Well, gold bulls get along with doves, not hawks. A more aggressive tightening cycle, including faster tapering of asset purchases, could boost expectations of more decisive interest rates hikes. In turn, the prospects of a more hawkish Fed could increase the bond yields and strengthen the US dollar. All this sounds bearish for gold. Indeed, the London price of gold dropped on Wednesday below $1,800… again, as the chart above shows. Hence, gold’s inability to stay above $1,800 is disappointing, especially in the face of high inflation and market uncertainty. Investors seem to have once again believed that the Fed will be curbing inflation. Well, that’s possible, but my claim is that despite a likely acceleration in the pace of the taper, inflation will remain high for a while. I bet that despite the recent hawkish tilt, the Fed will stay behind the curve. This means that the real interest rates should stay negative, providing support for gold prices. The previous tightening cycle brought the federal funds rate to 2.25-2.5%, and we know that after an economic crisis, interest rates never return to the pre-crisis level. This is also what the euro-dollar futures suggests: that the upcoming rate hike cycle will end below 2%. The level of indebtedness and financial markets’ addiction to easy money simply do not allow the Fed to undertake more aggressive actions. Will gold struggle in the upcoming months then? Yes. Gold bulls could cry. But remember: tears cleanse and create more room for joy in the future. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Huge News! The Fed’s Tapering Is Finally Here!

Huge News! The Fed’s Tapering Is Finally Here!

Arkadiusz Sieron Arkadiusz Sieron 04.11.2021 15:04
The Fed has announced tapering of its quantitative easing! Preparing for the worst, gold declined even before the release - will it get to its feet? . Ladies and gentlemen, please welcome to the stage the one and only tapering of the Fed’s quantitative easing! Yesterday was that day – the day when the FOMC announced a slowdown in the pace of its asset purchases: In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage‑backed securities by at least $35 billion per month. It’s all but a bombshell, as this move was widely expected by the markets. However, what can be seen as surprising is the Fed’s decision to scale back its asset purchases already in November instead of waiting with the actual start until December. Hawks might be pleased – contrary to doves and gold bulls. How is the tapering going to work? The Fed will reduce the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities each month: Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. So, instead of buying Treasuries worth $80 billion and agency mortgage‑backed securities worth $40 billion (at least), the Fed will purchase $70 billion of Treasuries later this month and $35 billion of MBS, respectively. Then, it will buy $60 billion of Treasuries and $30 billion of MBS in December, $50 billion of Treasuries and $25 billion of MBS in January, and so on until the last round of purchases in May 2022. This means that the quantitative easing will be completed by mid-year if nothing changes along the way. The announcement of the tapering was undoubtedly the biggest event; however, I would like to point out one more modification. The sentence “inflation is elevated, largely reflecting transitory factors” was replaced in the newest statement with “inflation is elevated, largely reflecting factors that are expected to be transitory”. It’s not a big alteration, but “expected to be” is weaker than simply “is”. This means that the Fed’s confidence in its own transitory narrative has diminished, which implies that inflation might be more persistent than initially thought, which could support gold prices more decisively at some point in the future. The Fed also explained why prices are rising: “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors”. Unsurprisingly, the Fed didn’t mention the surge in the money supply and the unconventional monetary and fiscal policies, just “imbalances”! Implications for Gold What does the Fed’s announcement of a slowdown in asset purchases imply for the gold market? Well, the yellow metal showed little reaction to the FOMC statement, as tapering was in line with market expectations. Actually, gold prices fell to three-week lows in the morning — right after the publication of positive economic data but before the statement. However, gold started to rebound after the FOMC announcement, as the chart below shows. Why? The likely reason is that both the statement and Powell’s press conference were less hawkish than expected. After all, the Fed did very little to signal interest rate hikes. What’s more, Powell expressed some dovish remarks. For instance, he said that it was a bad time to hike interest rates: “it will be premature to raise rates today” (…) We don’t think it is a good time to raise interest rates because we want to see the labor market heal more.” The bottom line is that gold’s reaction to the FOMC statement was muted, as tapering was apparently already priced in. The lack of bearish reaction is a positive sign. However, gold’s struggle could continue for a while, perhaps until the Fed starts its tightening cycle. For now, all eyes are on Friday’s non-farm payrolls. Stay tuned! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Weak November Payrolls Won’t Help Gold

Weak November Payrolls Won’t Help Gold

Arkadiusz Sieron Arkadiusz Sieron 07.12.2021 17:14
  November employment report was mixed. Unfortunately for gold, however, it won’t stop the Fed’s hawkish agenda. Nonfarm payrolls disappointed in November. As the chart below shows, the US labor market added only 210,000 jobs last month. This number is much lower than both October’s figure (546,000 gains) and the market expectations (MarketWatch’s analysts forecasted 573,000 added jobs). So, it’s a huge blow to those optimistic about the US economy. However, this is a huge blow that nobody will care about because the disappointing payrolls were accompanied by a big decline in unemployment. As the chart above shows, the unemployment rate decreased by 0.4 percentage points, from 4.6% in October to 4.2% in November. What’s more, the unemployment rate declined simultaneously with the increases in both the labor-force participation rate (from 61.6% to 61.8%) and the employment-to-population ratio (from 58.8% to 59.2%). This means that the reduction in unemployment was genuine and rather not a result of dropping out from the labor market. Additionally, wage inflation has slowed down from 4.84% in October to 4.8% in November, remaining below expectations, which could slightly ease inflationary concerns. Last but not least, after revisions, employment in September and October combined was reported to be 82,000 higher than previously indicated, and the monthly job growth has averaged 555,000 so far this year. Therefore, even a weak November doesn’t change the fact that 2021 marked a great improvement in the US labor market.   Implications for Gold What does the November employment report imply for the gold market? The nonfarm payrolls disappointed, but it’s not enough to stop the Fed from accelerating the pace of tapering its quantitative easing, especially given the significant reduction in the unemployment rate. So, the hawkish revolution won’t be stopped. It may even be strengthened, as a big decline in unemployment brings us closer to “full employment” and meeting the criteria for hiking interest rates. This is, of course, not good news for the gold bulls. After hearing worries about inflation a few weeks ago, the Fed managed to calm investors. They’ve believed that Powell and his colleagues would take the inflationary threat seriously. Markets now expect a speed-up in the pace of tapering in December and as much as three interest rates hikes in 2022 (there are even investors who bet on seven hikes by the end of the next year!). However, there is a silver lining here. With the unemployment rate at 4.2%, the potential for further improvement is rather limited. And when a new upward trend begins, we will have rising unemployment rate and high inflation at the same time. Such conditions create stagflation, which would take gold higher. This is still a song of the future, though. Let’s focus on the recent past: gold prices increased slightly on Friday (December 3, 2021). Although the London P.M. Fix hardly changed (see the chart below), the New York price rebounded to about $1,783 on Friday from $1,769 the day before. However, it doesn’t change the fact that gold remains stuck in a sideways trend below $1,800, as concerns about inflation exist along with expectations of a more aggressive Fed tightening cycle. Luckily for gold, despite its hawkish rhetoric, the US central bank will remain behind the inflation curve. The cautious, dovish policy is simply too tempting, as hitting the brakes too hard could trigger a financial crisis and a recession. With the CPI annual rate above 6%, the Fed should have already hiked the federal funds rate instead of waiting until Q2 2022. And even with three 25-basis point hikes, real interest rates will remain deeply in negative territory, which should be supportive of gold prices. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
The anatomy of Fed tapering is different this time

The anatomy of Fed tapering is different this time

Peter Garnry Peter Garnry 08.12.2021 14:20
Equities 2021-12-08 14:00 8 minutes to read Summary:  Growth and bubble stocks celebrated its best day in nine months yesterday on good news about the Omicron variant, but the true underlying risk in the form of higher interest rates has not gone away. The Fed has acknowledged inflation which will give it less flexibility should tapering cause some wave splash in equities. Interest rate sensitivity will be a key theme in 2022 for equities and especially growth and bubble stocks. For those growth companies that can lift expectations for operating margin trajectory can mitigate the negative impact from higher interest rates, but those growth companies that fail to lift profitability will likely experience a tough 2022. Bubble stocks are back on positive Omicron news It was a blockbuster equity session like we have not seen in nine months with our NextGen Medicine, E-commerce, and Bubble Stocks baskets gaining between 5% and 6.6%. The culprit was of course the continued positive news flow suggesting that the new Covid-19 variant Omicron is less virulent than feared and today Pfizer announced that three shots with their vaccine protect against Omicron. Does that change the overall concern for growth and especially bubble stocks? In our recent equity note Interest rate sensitivity is back in town haunting technology stocks we show quantitatively how the Nasdaq 100 Index (US technology stocks) is significantly more interest rate sensitive than the S&P 500 Index and STOXX 600 Index (see chart below). This interest rate sensitivity is key to understand the underlying risk in growth and especially bubble stocks, and the risk of higher interest rates has gone away. The Fed will have less flexibility this time In fact the Fed has acknowledged that inflationary pressures are more rooted and broad based, and of concern for US households seeing their purchasing power declining. The Fed has three times since early 2013 tried to taper its bond purchases all with negative impact on financial assets. Every time markets hit a big enough pain point, the Fed reversed and restarted quantitative easing. This could be done because inflation expectations were low and well anchored. But fast forward and today’s inflationary outlook is very different and the Fed might not be in a position where it can go back to expanding the balance sheet. Tapering will be accelerated in the coming months and then rate hikes are coming and if the economy or financial markets are deteriorating the Fed might have to remain tight to control inflation. As we have said many times the past couple of months investors must balance their portfolios before the tighter monetary policy cycle kicks properly into gear. Investors should reduce exposure to growth and bubble stocks, while increasing exposure to themes that can provide some cover during inflationary pressures. The themes we think will do well during inflationary periods are mega caps (Microsoft’s recent price hike shows why), semiconductors, logistics, financial trading firms (bet on volatility), cyber security (business necessity), and the commodity sector. The fact that mega caps have reached unimaginable market power and are hugely profitable is bad for the overall economy, but it is likely going act as a cushion for the equity market when interest rates start rising. The chart below shows another important aspect of markets that we need to be aware of. The decade of the 2010s was the best decade in terms of earnings growth adjusted for inflation in the S&P 500 since WWII. It explains the multiple expansion under lower interest rates, but it also explains the rise of passive investing as the rapid earnings growth has lifted all boats. The 2010s is unlikely be repeated in the current decade and a higher inflationary outlook will likely give rise to a different investing climate in equities and active strategies might stage a big comeback. Higher operating margin will differentiate growth stocks in 2022 We recently modeled a growth stock which had a price implied expectation of four years into the future, meaning that the market value was derived by extrapolating consensus expectations of growth and operating margin until 2025. The interesting part of this analysis is to find out which parameter gives rise to the biggest change in market value. In this case it was not revenue growth unless it went down a lot, which would only happen under a recession scenario. An upside change to operating margin expectations drives a rather large change in value; in other words, growth companies that can raise operating margin faster than expected will get rewarded. But the most sensitive parameter to the market value was the interest rate. By moving up the 10-year interest rate by 100 basis point the company’s value fell 26% because the higher interest rate impact financing costs on debt and the cost of equity. The example above provide a glimpse into the important battleground in equities in 2022. Higher interest rates because of higher inflation combined with the fiscal drag will create an environment with higher discount rate on cash flows while likely lower overall growth. This will penalize a lot of growth and bubble stocks, these companies can only mitigate this impact by raising operating margin beyond current expectations. If they do not manage to do that, then we could see great losses in 2022 in these pockets of the equity market.
Gold Stuck Between High Inflation and Strong Dollar

Gold Stuck Between High Inflation and Strong Dollar

Arkadiusz Sieron Arkadiusz Sieron 09.12.2021 16:46
  Inflation supports gold, the expected Fed’s reaction to price pressure – not. Since gold ended November with a small gain, what will December bring? I have good and bad news. The good is that the price of gold rose 2% in November. The bad –is that the price of gold rose 2% in November. It depends on the perspective we adopt. Given all the hawkish signals sent by the Fed and all the talk about tapering of quantitative easing and the upcoming tightening cycle, even a small increase is an admirable achievement. However, if we focus on the fact that US consumer inflation rose in October to its highest level in 30 years, and that real interest rates have stayed deeply in negative territory, gold’s inability to move and stay above $1,800 looks discouraging. We can also look at it differently. The good news would be that gold jumped to $1,865 in mid-November. The bad news, on the other hand, would be that this rally was short-lived with gold prices returning to their trading range of $1,750-$1,800 in the second half of the month, as the chart below shows. Now, according to the newest WGC’s Gold Market Commentary, gold’s performance in November resulted from the fact that higher inflation expectations were offset by a stronger dollar and rising bond yields that followed Powell’s nomination for the Fed Chair for the second term. Indeed, as you can see in the chart below, the greenback strengthened significantly in November, and real interest rates rallied for a while. Given the scale of the upward move in the dollar, and that it was combined with a surge in yields, gold’s performance last month indicates strength rather than weakness. As the WGC notes, “dollar strength was a headwind in November, acting as a drag on gold’s performance, but not enough to outweigh inflation concerns.”   Implications for Gold Great, but what’s next for the gold market in December and 2022? Well, that’s a good question. The WGC points out that “gold remains heavily influenced by investors’ continued focus on the path of inflation (…) and the Fed’s and other central banks’ potential reaction to it.” I agree. Inflation worries increase demand for gold as an inflation hedge, supporting gold, but they also create expectations for a more hawkish Fed, hitting the yellow metal. It seems that the upcoming days will be crucial for gold. Tomorrow (December 10, 2021), we will get to know CPI data for November. And on Wednesday (December 15, 2021), the FOMC will release its statement on monetary policy and updated dot plot. My bet is that inflation will stay elevated or that it could actually intensify further. In any case, the persistence of high inflation could trigger some worries and boost the safe-haven demand for gold. However, I’m afraid that gold bulls’ joy would be – to use a trendy word – transitory. The December FOMC meeting will probably be hawkish and will send gold prices down. Given the persistence of inflation, the Fed is likely to turn more hawkish and accelerate the pace of tapering. Of course, if the Fed surprises us on a dovish side, gold should shine. What’s more, the hawkish tone is widely expected, so it might be the case that all the nasty implications are already priced in. We might see a “sell the rumor, buy the fact” scenario, but I’m not so sure about it. The few last dot-plots surprised the markets on a hawkish side, pushing gold prices down. I’m afraid that this is what will happen again. Next week, the Fed could open the door to earlier rate hikes than previously projected. Hence, bond yields could surge again, making gold move in the opposite direction. You’ve been warned! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Another 4 Years of Gold’s Tricky Romance With Jay

Another 4 Years of Gold’s Tricky Romance With Jay

Arkadiusz Sieron Arkadiusz Sieron 10.12.2021 16:45
  “Do you love me?”, asked gold. “Of course, my dear”, replied Jay, but his thoughts were with others: asset purchases tapering and interest rate hikes. “It’s complicated” – this is how many people answer questions about their romantic lives. The relationship between gold and Jerome Powell is also not a clear one. As you know, in November, President Biden announced that he would reappoint Powell for the second term as the Fed Chair. It means that gold will have to live with Jerome under the same roof for another four years. To say that gold didn’t like it is to say nothing. The yellow metal snapped and left the cozy living room of $1,850, slamming the door loudly. In less literary expressions, its price plunged from above $1,860 on November 19 to $1,782 on November 24, 2021, as the chart below shows. The impulsive gold’s reaction to Powell’s renomination resulted from its failed dream about a love affair with Lael Brainard. She was considered a leading contender to replace Powell. The contender that would be more dovish and, thus, more supportive of gold prices. However, is a hawkish dove a hawk? Is Powell really a hawk? Even if more hawkish than Brainard, he still orchestrated an unprecedentedly accommodative monetary policy in response to the pandemic-related economic crisis. It was none other than Powell who started to cut interest rates in 2019, a year before the epidemic outbreak. It was he who implemented an inflation-averaging regime that allowed inflation to run above the target. Right now, it’s also Powell who claims that the current high inflation is transitory, although it’s clear for almost everyone else that it’s more persistent. I wouldn’t call Powell a hawk then. He is rather a dove in a hawk’s clothing. So, gold doesn’t have to suffer under Powell’s second term as the Fed Chair. Please take a look at the chart below, which shows gold’s performance in the period of 2017-2021. As you can see, the yellow metal gained about 34% during Powell’s first term as the chair of the Federal Reserve that started in February 2018 (or 40% since Trump’s November 2017 nomination of the Fed). Not bad! Actually, gold performed much better back then than under Yellen’s term as the Fed Chair. During her tenure, which took place in 2014-2018, the yellow metal was traded sideways, remaining generally in a corridor between $1,100-$1,300. I’m not saying that Yellen despised gold, while Powell loves it. My point is that gold’s performance during the tenures of Fed Chairs varies along with changes in the macroeconomic environment in which they act and the monetary stance they adopt. Gold suffered strongly until December 2015, when Yellen finally started hiking the federal funds rate. It then rebounded, only to struggle again in 2018 amid an aggressive tightening cycle. However, at the end of that year it started to rally due to a dovish shift within the Fed, and, of course, in a lagged response to unprecedented fiscal and monetary actions later in 2020. I have bad and good news here. The former is that the macroeconomic environment during Powell’s second term could be more inflationary, demanding more hawkish actions. The Fed has already started tapering of its quantitative easing, and bets are accumulating that it could start hiking interest rates somewhere around mid-2022. What’s more, the continuation of Powell’s leadership ensures more stability and provides markets with more certainty about what to expect from the Fed in the coming years. This is bad news for safe-haven assets such as gold. Last but not least, the composition of the FOMC is going to shift toward the hawkish side. This is because some strong doves, such as Daly and Evans, are out, while some notable hawks, such as George, Mester (and also Bullard), are among the voting members in 2022. Gold may, therefore, find itself under downward pressure next year, especially in its first half. On the other hand, the current FOMC expresses clearly dovish bias. With mammoth public debt and elevated asset prices, aggressive tightening would simply be very risky from a financial and political point of view. So, the Fed is likely to generally remain behind the curve. By the way, Biden not only reappointed Powell for the second term as Fed Chair, but he also appointed Brainard as Vice-Chair. We also can’t exclude that Biden agreed to Powell’s second term only if he conducts “appropriate” monetary policy. Democratic Senator Elizabeth Warren once called Powell “a dangerous man.” Well, in a way, it’s true, as powerful people can be dangerous. However, history shows that Powell doesn’t have to be a threat to gold. After all, he is not a hawk in the mold of Paul Volcker, but merely a hawkish dove, or a dove that will have to normalize the crisis monetary policy and curb inflation. In the upcoming months, gold may struggle amid prospects of more interest rates hikes and likely strengthened hawkish rhetoric from the Fed. However, precious metals investors often sell the rumor and buy the fact. So, when the US central bank finally delivers them, better times may come for the yellow metal, and gold and Jay could live happily ever after. The End. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Why Isn’t Gold Rallying Along With Inflation?

Why Isn’t Gold Rallying Along With Inflation?

Arkadiusz Sieron Arkadiusz Sieron 05.11.2021 16:20
  Inflation is high and doesn’t seem to be going away anytime soon. However, gold is not rising. The question is – what does the Fed have to do with it? Inflation is not merely transitory, and that’s a fact. Why then isn’t gold rallying? Isn’t it an inflation-hedge? Well, it is - but gold is a lazy employee. It shows up at work only when inflation is high and accelerating; otherwise, it refuses to get its golden butt up and do its job. All right, fine, but inflation is relatively high! So, there have to be other reasons why gold remains stuck around $1,800. First of all, central banks are shifting their monetary policy. Global easing has ended, global tightening is coming! Actually, several central banks have already tightened their stance. For example, among developed countries, New Zealand, Norway, and South Korea have raised interest rates. Brazil, the Czech Republic, Hungary, Mexico, Poland, Romania, and Russia are in the club of monetary policy hawks as well. Even the bank of England could hike its policy rate this year, while the Fed has only announced tapering of its asset purchases. So, although central banks will likely maintain their dovish bias and real interest rates will stay negative, the era of epidemic ultra-loose monetary policy is coming to an end. We all know that neither the interest rates nor the central banks’ balance sheets will return to the pre-pandemic level, but the direction is clear: central banks are starting tightening cycles, no matter how gentle and gradual they will be. This means that monetary policy is no longer supportive of gold. The same applies to fiscal policy. It remains historically lax despite fiscal stimulus being pulled back. Even though Uncle Sam ran a fiscal deficit of $2.8 trillion in fiscal year 2021 - almost three times that of fiscal year 2019 ($0.98 trillion) - it was 12% lower than in fiscal year 2020 ($3.1 trillion). This implies that the fiscal policy is also tightening (despite the fact that it remains extravagantly accommodative), which is quite a headwind for gold. Investors should always look at directional changes, not at absolute levels. What’s more, we are still far from stagflation. We still experience both high inflation and fast GDP growth, as well as an improving labor market. As a reminder, the unemployment rate declined from 5.2% in August to 4.8% in September. The fact that the labor market continues to hold up relatively well is the reason why the so-called Misery Index, i.e., the sum of inflation and unemployment rates, remains moderate despite high inflation. It amounted to 10.19 in September, much below the range of 12.5-20 seen during the Great Inflation of the 1970s (see the chart below). So, the dominant narrative is about both inflation and growth. When people got vaccines, markets ceased to worry about coronavirus and started to expect a strong recovery. Commodity and equity prices are rising, as well as real interest rates. These market trends reflect expectations of more growth than inflation – expectations that hurt gold and made it get stuck around $1,800. Having said that, the case for gold is not lost. Gold bulls should be patient. The growth is going to slow down, and when inflation persists for several months, the pace of real growth will decline even further, shifting the market narrative to worrying about inflation’s negative effects and stagflation. Gold should shine then. Wait, when? Soon. The Fed’s tightening cycle could be a turning point. The US central bank has already announced tapering of quantitative easing, which could erase some downward pressure on gold resulting from the anticipation of this event. Additionally, please remember that every notable market correction coincided with the end of QE, and every recession coincided with the Fed’s tightening cycle. Moreover, don’t forget that gold bottomed in December 2015, just when the Fed started hiking the federal funds rate for the first time since the Great Recession, as the chart below shows. However, when it comes to tapering, the situation is more complicated. The previous tapering was announced in December 2013, started in January 2014, and ended in October 2014. As one can see in the chart above, the price of gold initially increased, but it remained in its downward trend until December 2015 when the Fed started hiking interest rates. Hence, if history is any guide, there are high odds that gold may struggle further for a while before starting to rally next year, which could happen even as soon as June 2022, when the markets expect the first hike in interest rates. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
WTI & Brent Crude Oil – How Will Inflation Impact Prices?

WTI & Brent Crude Oil – How Will Inflation Impact Prices?

Sebastian Bischeri Sebastian Bischeri 15.12.2021 16:37
  Once inflation is set free, it never returns to the previous state. The fight requires fast thinking, but major banks still sit on the fence. On the global economic scene, major central banks still don’t really know which pedal to use - either the one to fight inflation (tapering) or the other one to keep taking their shoot of quantitative easing (money-printing) policies. Inflation, however, is like toothpaste: once you got it out, you can’t get it back in again. So, instead of squeezing the tube too strongly, both the Federal Reserve (Fed) and the European Central Bank (ECB) are likely to maintain an accommodating tone this week, which could eventually benefit the price of black gold. Crude oil prices were looking for a direction to take on Tuesday, after mixed reports emerged, one rather pessimistic on global demand (published by EIA) and the other, more optimistic over sustained demand, from the OPEC group. Indeed, the first report came from the International Energy Agency (IEA) on Tuesday morning. It slightly lowered its forecast of world oil demand for 2021 and 2022, by 100,000 barrels per day on average, mainly to consider the lower use of air fuels due to new restrictions on international travel. The second one, from OPEC, stated on Monday in a more optimistic bias that the cartel has indeed maintained its forecasts for global oil demand in 2021 and 2022. It estimated that the impact of Omicron should be moderate and short-term since the world is becoming better equipped to face new variants and difficulties they may cause. Therefore, while the prospect of possible travel restrictions and new lockdowns worries investors, the American Petroleum Institute (API) reported on Tuesday a drop in commercial crude reserves of 800,000 barrels last week. On the geopolitical scene, growing tensions between Russia and the West over the conflict in Ukraine are contributing to escalating gas prices, given that a third of European gas comes from Russia. WTI Crude Oil (CLF22) Futures (January contract, daily chart, logarithmic scale) Brent Crude Oil (UKOIL) CFD (daily chart, logarithmic scale) Henry Hub Natural Gas (NGF22) Futures (January contract, daily chart, logarithmic scale) In summary, we can witness more volatile markets than usual for the month of December. Even though this could be accentuated by the end-of-year adjustment operations among traders, some uncertainties with central banks’ monetary policies remain and are certainly weighing on the financial markets, especially in the inflationary context. Thus, the week ahead could be an interesting one for both the black gold and the greenback. Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Sebastien BischeriOil & Gas Trading Strategist * * * * * The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
A quick story before we start

A quick story before we start

Brent Donnelly Brent Donnelly 16.12.2021 15:18
FAIRFIELD COUNTY, CONNECTICUT May 6, 2010 4:55AM The Connecticut air is cold and damp. The trader moves in silence. He steps quietly through the pitch-black darkness of his Victorian McMansion and toward the door. As he disarms the home security system, the BEEP BEEP BEEP of the keypad code he enters is impossibly loud in the quiet of the pre-dawn morning. He steps out of the house, closes and locks the door, and hops into his car. As he rolls down the driveway and into the foggy morning, he inserts a Deadmau5 CD and blasts it at high volume in an effort to wake up and get pumped for another day of trading. But this will not just be another day of trading. This will be one of the most insane trading days of his career. It has been a frustrating year so far. The Eurozone Crisis has been smoldering for months but the trader’s attempts to sell the euro have been met with massive countertrend rallies as the Fed embarks on another round of USD-negative quantitative easing (QE). They call EURUSD a collision of two garbage trucks. The trader struggles to steer clear of the wreckage. His strongest view recently has been lower USDJPY. There is risk aversion popping up all over the place as markets worry about a domino effect where Greece crashes out of the Eurozone, followed by Spain, Portugal, Ireland and then finally Italy. Everyone is bearish stocks as the S&P 500 rally from 666 in March 2009 to 1050 now is seen as a mirage; the side effect of a money printing magic trick performed by central bankers. Totally unsustainable. EURUSD opened the year at 1.4500 and now trades sub-1.25 so the short trade is hard to stomach. Even when you know it’s the right thing to do, it takes a lot of courage to sell something down >15%. So the trader has shifted his attention to USDJPY and he expects it to go substantially lower as global risk aversion remains elevated and safe haven currencies like the yen should find demand. USDJPY has been inexplicably well-bid given recent risk aversion and the Fed “money printing”. It just rallied from 90 to 94 on air over the last two weeks. Meanwhile, the best leading indicator for USDJPY is always US bond yields and they have been plummeting for a month. USDJPY looks completely wrong. The trader stares at the following chart, which shows US 10-year bond yields and USDJPY. The black bars are USDJPY and the dotted line shows US bond yields. Note they usually follow in lockstep. The divergence is a strong signal to the trader that he should be short USDJPY. USDJPY vs. US 10-year rates November 2009 to May 5, 2010 The chart covers the period up to May 5. This story takes place May 6. Chart courtesy of Refinitiv. If you look in the top right corner, you can see that USDJPY is a bit off the highs, but not much. Two days in a row, the high has been 94.99 and USDJPY is now bouncing aimlessly around 93.80 as he rolls into the hedge fund parking lot. It is still early so there are only three Porsche 911s in the lot right now. More will arrive later. This USDJPY trade has been tiring and painful as the trader got short at 94.00 with a stop loss at 95.05 and those two daily highs mean he has come within a hair (6 pips, or 0.064%) of getting stopped out, two days in a row. Holding on to a trade like this is exhausting as his fight-or-flight stress system remains activated for long stretches. Cortisol overload. Now, he can relax a bit and let things play out. His target is 91.00. Average daily range has been about 1 yen (100 pips) lately so he figures we might get there in the next week or so. 10:45 AM It has been a boring morning with USDJPY in a tight range. The sun comes out and it’s almost shorts weather outside so the trader decides to go for a run before lunch. Less than a mile into his run, he gets his first indication that this is not a random, ordinary day. His Blackberry rings. Bank sales on the line to tell him that USDJPY has just dumped 100 points in 15 minutes. Trading 92.80 now… Odd. He turns around and sprints back to the office, Spidey-sense tingling. By the time he grabs a quick shower and returns to the desk, USDJPY is 91.50. He is short $100 million USDJPY so that puts his profit (aka P&L or profit and loss) around +$2.8 million on the day. That’s more P&L than this trader typically makes in an excellent month. A huge haul. He scans the headlines and Bloomberg chats and finds no good explanation for what is going on. The stock market is down, but not enough to explain the move in USDJPY. This makes no sense. When a trade shows a big profit that makes no sense, he likes to cover it and move on. The trader buys 100 million USDJPY at 91.50. He is back to flat with no position and nearly 3 bucks of P&L in the bank. He sits there calmly and processes what has happened. He allows himself to feel happy, just for a second. He stuck to his plan and had the patience to sit with a decent-sized position for three days. He relaxes and basks in the satisfaction of a job well done. Then… Some dumb voice in his brain says: 2.8 million dollars is an amazing day. But... Maybe I can make 5 million today? And his hands, as if possessed by some mischievous or evil force, move slowly toward the BUY and SELL buttons. For no reason. And like a moron… He goes long USDJPY. First, he buys $50 million at 91.50 and then another $50 million at 91.25. These are impulsive trades with no rationale. His planned stop loss is 90.85 but before he has time to input a stop loss order, he notices S&Ps lurch lower on a huge volume surge. He puts on his headset and fires up the S&P squawk to see what’s going on. [If you want to hear the soundtrack to what happens next, Google “Flash crash stock market 2010 squawk” and select one of the YouTube replay videos] The announcer’s voice is strained as he narrates an unexplained fall in stocks from 1150 to 1120. USDJPY skips through 91.00 and the trader’s P&L shrinks to $2.0 million. He tries to sell at 90.80 and whiffs. USDJPY is suddenly in freefall. 90.10 trades. 90.00 breaks. USDJPY has just dropped more than four percent in a few hours. A monster move. The trader’s eyes flick over to his P&L which has now shrunk back to six digits. Two-thirds of three days’ work, gone in 60 seconds. And then… Stocks sell off hard out of nowhere. Like… REALLY HARD. The S&P squawk guy is losing it. Screaming. 1100 breaks in the S&P. 1080, 1070, 1060. USDJPY is a waterfall. The squawk loses his mind as he yells: “We have some BIG paper sellers here… 7 evens are trading. 6 evens are trading! 5 EVENS ARE TRADING!!! New lows here…” USDJPY breaks 89.00 and the trader has still sold only 23 million USD, leaving him stuck with a position of 77 million USD. It is a fast market, nearly impossible to transact. He picks up a phone to two different banks and neither one answers. He tries to hit the 88.60 and gets a reject notice from the aggregator. The price feed is stale and crossed now; it shows 89.00 / 88.10, which is not possible. The trader is now down on the day. In the red. His face is hot and feels red like his P&L. Urge to slam fist on desk is rising. The trader feels like he is falling, falling::::::::::::::::::::in cinematic slow-mo. USDJPY stabilizes a bit even as the S&P squawk continues to go nuts. “65 even offered! 60 trades… 60 even bid, this is the widest we have seen in years,” his voice cracks, he’s yelling like the announcer at Churchill Downs as the horses turn for the stretch. “60s trading! 50s trading! 50 at 70 now! We are twenty wide!” 1060 trades in S&Ps now, down just about 10% today, on zero news. Nobody knows what the hell is going on and there is panic in the air. The squawk dude continues to scream. He is pouring gasoline on the trader’s agitation. The trader’s P&L is now six figures in the red. Sadness. Anger. He is furious with himself because he had the right trade, waited patiently for almost three days for it to work, caught the move perfectly according to plan … And then flipped the other way on a whim, for no reason and gave everything and more back in half an hour. $2.8 million is a good month for this trader. He just made and lost that much in less than two hours. I am an idiot. How did I get into this mess? He needs to make a decision here and quick but he realizes that he is flooded. It is impossible to make a good trading decision when you’re flooded. He needs a second to clear his mind. He tears off the headphones, drops them on his desk, and stands up. He walks over to the window and tries to find a moment of lucid calm. He has been through these emotional storms before and knows how to get back to shore. He stares over the waters of the Long Island Sound. Gradually, his heart rate lowers. Clarity slowly, slowwwwly returns. His lizard brain retreats and his rational mind takes over. He talks to himself: It doesn’t matter how you got here. What are you going to do about it? 88.00 was the low in March. It’s a massive level. The panic is fading. USDJPY is down 700 points in two days and now bonds are reversing lower. This is the place to buy USDJPY, not sell. He returns to his keyboard, puts his headphones back on. The squawk guy has stopped screaming. He is noticeably more composed. S&P futures have bottomed within a whisker of limit down. They are stable but have not rebounded significantly. The bid/offer is super wide so it’s hard to tell whether they are moving higher or just bouncing along the bottom. The trader looks around the room and sees the panic and electricity levels have dropped. Not as many phones are ringing. Voices in the room are no longer frantic. He buys 50 million USDJPY at 88.85. And another 73 million at 88.95. Max long now, long $200 million USDJPY. But this time it’s thought out, not random, and he feels good about what he is doing. He feels confident but fully in control. He calmly thinks forward: USDJPY could easily rally to 92.50 from here. When you catch a turn like this, you can be greedy. He leaves a stop loss for half his position (sell 100 million USDJPY at 87.94) and then sits back to let things play out. He has his plan and now he knows all he can do is watch and see if it works. There is one more frenetic whipsaw and USDJPY briefly prints to a low of 87.95. One pip from his 100 million USD stop loss. Amazing luck. Seconds later, stocks stabilize, and then it’s like everyone realizes all at once that whatever the heck just happened… It’s over. USDJPY is paid at 88.70, then up through 89.50. It breaks 90.00 and as it hits 90.40, the trader flicks his eyes to the P&L. It is almost exactly back to the level where it peaked earlier: $2.8 million. He praises the trading gods and squares up. NICE! Too bad he didn’t stick with his plan on the way back up, either. A few hours later, USDJPY hit the trader’s original target of 92.50. Here’s the chart of USDJPY that day: USDJPY May 3-7, 2010 (US stock market Flash Crash was May 6) The trader made a multitude of both good and bad decisions in the three hours around the 2010 Flash Crash. The trading described in this story is a microcosm of everything that can go right and wrong in trading. Traders make good, careful decisions and get rewarded, they make bad decisions and get punished … but then sometimes a good decision leads to a bad outcome … or a bad decision is rescued by good luck. Every trader is a steaming hot bowl of bias stew and must maintain self-awareness and lucidity behind the screens as the trading day oscillates between boredom and terror. That story of the 2010 Flash Crash, just like this book, is all about the razor thin line that separates success and failure in trading. Alpha Trader is written to help you understand markets but also, more importantly, to help you better understand yourself as a trader. It is about great decisions and dumb mistakes. It is about how to be rational and why smart people do stupid things. All the time. The book is written for traders at every skill level. I wrote it to be understood by noobs, but I also aimed to write something that will resonate with experienced trading professionals. Alpha Traders are smart, rational, disciplined, flexible, patient, and aggressive… They have the endurance to handle unending ups, downs, hills, and valleys. They come in fired up each day to solve the ultimate puzzle and they get paid incredibly well if they succeed. Alpha Traders work hard (even when they don’t feel like it), seek to continuously improve, and love markets more than they love money. Thank you for taking the time to read my book. I hope you find it entertaining and useful. I hope it helps you unlock your maximum trading potential. By the way, I plan to publish future updates, fresh trading stories and new lessons, tactics and strategies, exclusively for readers of Alpha Trader. If you are interested, please sign up at brentdonnelly.com. Enjoy. /Brent
Fed Accelerates Tapering, but Gold Shows Resilience

Fed Accelerates Tapering, but Gold Shows Resilience

Finance Press Release Finance Press Release 16.12.2021 15:33
The Fed begins to get up steam and has finally turned its hawkish mode on. Was it something the gold bulls wanted to hear?The Fed’s full capitulation and unconditional surrender of the doves! Yesterday (December 15, 2021), the FOMC issued) the newest statement on monetary policy in which it erased any description of inflation as “transitory.” It took them only half a year to figure it out, but better late than never. Additionally, the Fed practically rejected its new monetary framework called “Flexible Average Inflation Targeting”, which allowed inflation to run hot for some time. In November, we could read:The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.In the last statement, however, this mammoth paragraph was substantially altered.The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment.What is missing is the reference to the Fed’s tolerance of inflation above its target. This means that the US central bank has turned the hawkish mode on. Indeed, in line with expectations, the Fed has accelerated the pace of tapering of its quantitative easing. The Committee announced a doubling of the monthly reduction in the purchased assets from $10 billion for Treasuries and $5 billion for MBS to, respectively, $20 and $10 billion. It means that the Fed will end its asset purchase program by March rather than by mid-year.In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities.Dot-Plot and GoldThese are not all December monetary fireworks we got, though. The statement was accompanied by fresh economic projections conducted by FOMC members. How do they look at the economy right now? As the table below shows, central bankers expect faster economic growth and a lower unemployment rate next year compared to the September projections. This is not something the gold bulls would like to hear.More importantly, however, FOMC participants see inflation as more persistent at the moment because they expect 2.6% PCE inflation at the end of 2022 instead of 2.2%. In other words: inflation is currently believed to reach this level only a year from now! Interestingly (at least for economic nerds like me), Committee members expect that core PCE inflation will be higher than the overall index in 2022, and will amount to 2.7%. It is an indication that the Fed considers inflation more broad-based now than just driven by rising energy prices.Last but definitely not least, more interest rate hikes are coming. According to the latest dot plot, FOMC members see three increases in the federal funds rate next year as appropriate. That’s a huge hawkish turn compared to September, when they perceived only one interest rate hike as desired. Central bankers expect another three hikes in 2023 (the same as in September) and additional two in 2024 (one less than in September). Hence, the whole forecasted path of the interest rates becomes steeper and the Fed is now anticipating eight 25-basis point rate hikes from 2022 to 2024, one more than they saw in September.Implications for GoldGiven the hawkish FOMC statement and economic projections, gold is doomed, right? Well, in theory, a more aggressive Fed’s tightening cycle should boost bond yields and strengthen the greenback, pushing gold prices down. However, what does gold say to the God of Bears? Not today!Indeed, the chart below shows that theory and practice are not the same. Initially, the price of gold declined from around $1,765 to around $1,755, but it quickly rebounded and even increased to $1,780.So, what happened and what does it imply for gold’s future? Well, gold didn’t panic, as hawkish statements and dot-plot were widely anticipated. They were probably a little more hawkish than expected, but, on the other hand, Powell’s press conference was deemed as more dovish than predicted. Since Powell’s earlier transparency and dovish heart rescued gold from falling down, gold bulls may breathe a sigh of relief.However, we believe that this wasn’t the Fed’s last word. Inflation is likely to increase further next year; so, the US central bank, which is terribly behind the curve, could be forced to tighten its monetary policy even more. Thus, although my worries about this FOMC meeting turned out to be unnecessary, they could materialize later.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Powell Sent Gold Above $1,800 – But Only for a Short While

Powell Sent Gold Above $1,800 – But Only for a Short While

Arkadiusz Sieron Arkadiusz Sieron 21.12.2021 13:34
Finally, Powell admitted higher inflation risks and gold jumped above $1,800. Before anyone noticed, however, it plummeted below the key level again. Who are you, Mr. Powell: a reptilian or a human? A dove or a hawk? Since we all know the answer to the first question, let’s focus on the second one. Markets decided that Powell’s last press conference was rather dovish, but a careful reading doesn’t support this view. The main dovish signal was Powell’s emphasis that quantitative easing tapering and interest rate hikes are separate issues, as the tightening cycle criteria are stricter. So, the first rate hike may not come immediately after the end of tapering, which is scheduled for mid-March. Even if they are separate, we shouldn’t expect a long break between the end of quantitative easing and the first rate hike. This gap will definitely be shorter than in 2014-2015. In the last tightening cycle, the Fed ended asset purchases in October 2014, while the first increase in the federal funds rate occurred in December 2015. Powell himself, however, pointed out that the economy is much stronger, while inflation is much higher, so a long separation before interest rate hikes is not likely: I don't foresee that there would be that kind of very extended wait at this time. The economy is so much stronger. I was here at the Fed when we lifted it off last time and the economy is so much stronger now, so much closer to full employment. Inflation is running well above target and growth as well above potential. There wouldn't be the need for that kind of long delay (…) The last cycle that was quite a long separation before interest rates, I don't think that's at all likely in this cycle. We're in a very, very different place with high inflation, strong growth, a really strong economy (…) So this is a strong economy, one in which it's appropriate for interest rate hikes. In fact, this delay may be very short. On Friday, Fed Governor Chris Waller said that the interest rate increase will likely be warranted “shortly after” the end of asset purchases, possibly even at the FOMC meeting in March 2022. Another hawkish message sent by Powell was his acknowledgment of stronger inflation risks, i.e., that inflation may turn out to be more lasting than expected now: There’s a real risk now, we believe, I believe, that inflation may be more persistent and that may be putting inflation expectations under pressure. And that the risk of higher inflation becoming entrenched has increased, it’s certainly increased. I don’t think it’s high at this moment, but I think it’s increased. And I think that’s part of the reason behind our move today, is to put ourselves in a position to be able to deal with that risk. Thus, the Fed has become more concerned about high inflation and has timidly started reacting to it. The acceleration in the pace of tapering was, except for the more hawkish rhetoric, the first step – but not the last one.   Implications for Gold The yellow metal responded surprisingly well to the last FOMC meeting, at which the Fed announced a more aggressive pace of tapering and rate hikes next year. As the chart below shows, gold rose almost $40, or more than 2%, from Wednesday to Friday last week, jumping again above the key level of $1,800. Perhaps investors expected even more forceful actions. After all, despite all the hawkish reaction, the Fed remains behind the curve and shows no hurry to become really proactive. Such a passive attitude is really risky, as history teaches us that high inflation doesn’t just go away on its own, but its stabilization requires a decisive tightening of monetary policy. The longer the Fed waits, the more severe reaction would be needed, which increases the odds of putting the economy into recession. All this seems bullish for gold prices. However, gold was unable to retain its position above $1,800 and declined on Monday (December 20, 2021), so gold bulls can only hope that the yellow metal will the find strength to rally next year. It’s possible if inflation wreaks more havoc in 2022, but a hawkish Fed’s rhetoric remains an important headwind for the gold market. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Is the End of Transitory Inflation the End of Gold Bulls?

Is the End of Transitory Inflation the End of Gold Bulls?

Arkadiusz Sieron Arkadiusz Sieron 24.12.2021 11:18
The debate about the nature of inflation is over. Now the question is what the end of transitory inflation implies for gold. I offer two perspectives. Welcome, my son. Welcome to the inflationary machine. Welcome to the new economic regime of elevated inflation. That’s official because even central bankers have finally admitted what I’ve been saying for a long time: the current high inflation is not merely a transitory one-off price shock. In a testimony before Congress, Jerome Powell agreed that “it’s probably a good time to retire” the word “transitory” in relation to inflation. Bravo, Jay! It took you only several months longer than my freshmen students to figure it out, but better late than never. Actually, even a moderately intelligent chimpanzee would notice that inflation is not merely temporary just by looking at the graph below. To be clear, I’m not predicting hyperinflation or even galloping inflation. Nor do I claim that at least some of the current inflationary pressures won’t subside next year. No, some supply-side factors behind recent price surges are likely to abate in 2022. However, other drivers will persist, or even intensify (think about housing inflation or energy crisis). Let’s be honest: we are facing a global inflation shock right now. In many countries, inflation has reached its highest rate in decades. In the United States, the annual CPI rate is 6.2%, while it reached 5.2% in Germany, 4.9% in the Eurozone, and 3.8% in the United Kingdom. The shameful secret is that central banks and governments played a key role in fueling this inflation. As the famous Austrian economist Ludwig von Mises noticed once, The most important thing to remember is that inflation is not an act of God; inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy — a deliberate policy of people who resort to inflation because they consider it to be a lesser evil than unemployment. But the fact is that, in the not very long run, inflation does not cure unemployment. Indeed, the Fed and the banking system injected a lot of money into the economy and also created room for the government to boost its spending and send checks to Americans. The resulting consumer spending boom clogged the supply chains and caused a jump in inflation. Obviously, the policymakers don’t want to admit their guilt and that they have anything to do with inflation. At the beginning, they claim that there is no inflation at all. Next, they say that inflation may exist after all, but is only caused by the “base effect”, so it will be a short-lived phenomenon that results solely from the nature of the yearly comparison. Lastly, they admit that there is something beyond the “base effect” but inflation will be transitory because it’s caused only by a few exceptional components of the overall index, the outliers like used cars this year. Nothing to worry about, then. Higher prices are a result of bottlenecks that will abate very soon on their own. Later, inflation is admitted to be more broad-based and persistent, but it is said to be caused by greedy businesses and speculators who raise prices maliciously. Finally, the policymakers present themselves as the salvation from the inflation problem(that was caused by them in the first place). Such brilliant “solutions” as subsidies to consumers and price controls are introduced and further disrupt the economy. The Fed has recently admitted that inflation is not merely transitory, so if the abovementioned scheme is adequate, we should expect to look for scapegoats and possibly also interventions in the economy to heroically fight inflation. Gold could benefit from such rhetoric, as it could increase demand for safe-haven assets and inflation hedges. However, the Fed’s capitulation also implies a hawkish shift. If inflation is more persistent, the US central bank will have to act in a more decisive way, as inflation won’t subside on its own. The faster pace of quantitative easing tapering and the sooner interest rate hikes imply higher bond yields and a stronger greenback, so they are clearly negative for gold prices. Having said that, the Fed stays and is likely to stay woefully behind the curve. The real federal funds rate (i.e., adjusted by the CPI annual rate) is currently at -6.1%, which is the deepest level in history, as the chart below shows. It is much deeper than it was at the lows of stagflation in the 1970s, which may create certain problems in the future. What is important here is that even when the Fed raises the federal funds rate by one percentage point next year, and even when inflation declines by another two percentage points, the real federal funds rate will increase to only -3%, so it will stay deeply in negative territory. Surely, the upward direction should be negative for gold prices, and the bottom in real interest rates would be a strong bearish signal for gold. However, rates remaining well below zero should provide some support or at least a decent floor for gold prices (i.e., higher than the levels touched by gold in the mid-2010s). Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Gold christmas tree?

Gold christmas tree?

Arkadiusz Sieron Arkadiusz Sieron 23.12.2021 12:25
Santa Claus is coming to town! What will he give gold: a gift or a rod? During the holiday week, not much happens in the marketplace. Investors focus on two things right now: whether Democrats will be able to pass Biden’s spending bill in the face of Senator Joe Manchin’s opposition, and whether the coronavirus Omicron variant will trigger new restrictions and hamper economic growth. After all, this strain has already become the dominant one in the US, but its effects are not yet known. Like most of 2021, gold has been rubbing against $1,800 this week but did not have the strength to permanently rise above this level. Despite a surge in inflation and very low real interest rates, the yellow metal didn’t rally. Thus, we could say that gold was rather naughty this year and doesn’t deserve gifts from Santa. However, maybe it’s not gold’s fault, but our too high expectations? After all, gold had to compete with cryptocurrencies and industrial metals (or commodities in general), both of which performed exceptionally well during periods of high inflation. Despite all the Fed’s hawkish rhetoric and tapering of quantitative easing, gold didn’t break down. Hence, it all depends on the perspective. The same applies to historical analyses and forecasts for 2022. The bears compare the current situation with the 2011-2013 period. The 2020 peak looked like the 2011 peak. Thus, after a period of consolidation, we could see a big decline, just as it happened in 2013. On the other hand, gold bulls prefer to compare today with 2015, as we are only a few months away from the Fed’s interest rate hikes. As a reminder, gold bottomed in December 2015, so the hope is that we will see another bottom soon, followed by an upward move. In other words, the bears believe that the replay of the “taper tantrum” is still ahead of us, while the bulls claim that the worst is already behind us.   Implications for Gold Who is right? Of course, me! But seriously: both sides make valid points. Contrary to 2013, the current tapering was well telegraphed and well received by the markets. Thus, the worst can indeed be already behind us. Especially that the 2020 economic crisis was very deep, but also very short, so everything was very condensed. I mean: the Great Recession lasted one and a half years, while the Great Lockdown lasted only two months. The first taper tantrum occurred in 2013, while the first hike in the federal funds rate – at the end of 2015. We won’t wait that long now, so the period of downward pressure on gold prices stemming from expectations of the Fed’s tightening cycle will be limited. Having said that, gold bears highlight an important point: real interest rates haven’t normalized yet. As the chart below shows, although nominal bond yields have rebounded somewhat from the August 2020 bottom, real rates haven’t followed. The reason was, of course, the surge in inflation. However, if inflation eases, inflation-adjusted rates will go up. Additional risk here is that the Fed will surprise the markets on a hawkish side. The bottom line is that Santa Claus may bring gold a rod this time. Although gold’s reaction to the recent FOMC meeting was solid, the overall performance of the yellow metal this month is worse compared to the historically strong action in December. I don’t expect a similarly strong downward move as in 2013, but real interest rates could normalize somewhat in 2022, given the upcoming Fed’s tightening cycle and possible peak in inflation. The level of indebtedness will limit the scope of the move, but it won’t change the direction. Anyway, whether you are a gold bull or a gold bear, I wish you a truly merry and golden Christmas (or just winter holidays)! Let the profits shine, even if gold won’t! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold and inflation

Gold and inflation

Arkadiusz Sieron Arkadiusz Sieron 28.12.2021 16:28
High inflation won’t go away in 2022. Good for gold. However, it is likely to continue to climb and reach its peak. That sounds a bit worse for gold. If 2021 was tough for you, I don’t recommend reading Nostradamus’ predictions for the next year. This famous French astrologer saw inflation, hunger, and much more coming in 2022: So high the price of wheat, That man is stirred His fellow man to eat in his despair Yuk! So, life is about to get a little more complicated: we must now avoid becoming infected and being eaten by our fellow citizens! If you are interested in how cannibalism will affect the gold market, I’m afraid that I don’t have adequate data. Anyway, if you end up in the pot together with vegetables and your colleagues, gold’s performance probably won’t be your top priority. Hence, let’s focus on inflation. Last week, the Bureau of Economic Analysis released the latest data on the Personal Consumption Expenditures Price Index. This measure of inflation surged 5.7% in the 12 months ended in November, which was the fastest increase since July 1982. Meanwhile, as the chart below shows, the core index, which excludes energy and food, rose 4.7%. It was the highest jump since February 1989. This is very important, as it shows that inflation is not elevated merely by rising energy prices. Instead, it’s more broad-based, which can make inflation more lasting. Indeed, there are strong reasons to expect that high inflation will stay with us in 2022. As the chart below shows, the shelter index – the biggest CPI component – has been rising recently, which should move the whole index up. In other words, surging home prices could translate into higher rents, supporting consumer inflation. Additionally, the Producer Price Index has also been rallying this year. The final demand index rose 9.6% on an annual basis in November, the largest advance since 12-month data was first calculated in late 2010. Moreover, the commodity index surged 23%, and it was the highest jump since November 1974. All this indicates that inflationary pressure remains strong. Implications for Gold To be clear, inflation will eventually peak, and this will probably happen in 2022. This is because a one-time helicopter drop (the surge in the money supply) leads to a one-time jump in the price level. However, inflation is like toothpaste. It’s easy to get it out, but it’s difficult to get it back in again. To use another metaphor, if you wait with your actions until you see the whites of the eyes of a tiger, you can be eaten (sorry for being monothematic today!). This was exactly the Fed’s strategy with the inflationary tiger for most of 2021. Yes, the US central bank accelerated tapering of quantitative easing in December, but it remains behind the curve (or, to continue the metaphor, it’s still holding the tiger by the tail). What does it all mean for the gold market? High inflation should support gold prices. The expectations of a more hawkish Fed probably prevent a big rally, but ultra-low real interest rates are supportive of the yellow metal. However, what is one of my biggest worries for the next year (except for the perspective of being eaten by hungry neighbors) is how gold will react to the peak in inflation. Although inflation will stay elevated, it won’t rise indefinitely. When it peaks, real interest rates could go up, negatively affecting the yellow metal. Of course, one would say that the peak of inflation would be accompanied by a more dovish Fed, so disinflation doesn’t have to hurt gold, just as rising inflation didn’t make it shine. However, this is not so simple, and if inflation stays above 5%, the Fed could still feel obligated to act and bring inflation to its 2% target. Anyway, US monetary policy (together with fiscal policy) will be tighter compared to 2020 and to other major countries, which (together with a likely peak in inflation) creates a rather challenging macroeconomic environment for gold in 2022 (at least until worries about the negative consequences of the Fed’s tightening cycle emerge). If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
2022 and Gold

2022 and Gold

Arkadiusz Sieron Arkadiusz Sieron 30.12.2021 17:54
  2021 was bad for gold. Unfortunately, 2022 doesn’t look any better, especially at the beginning. The end, however, gives the yellow metal some hope… Bye, bye 2021! It definitely wasn’t a year of gold. As the chart below shows, the yellow metal lost 5% of its value over the last twelve months, declining from $1,887.60 on December 30, 2020, to $1,794.25 on December 29, 2021. Thus, the gold bulls won’t miss 2021, I guess. What about me? Well, I correctly predicted in January that “gold’s performance in 2021 could be worse than last year”. However, I expected more bullish behavior. I thought that rising inflation would be more supportive of gold prices. I’m fully aware that gold is not a perfect inflation hedge, but historical analysis suggests that high and accelerating inflation should be positive for gold prices. After all, inflation lowers the real interest rates, the key fundamental factor in the gold market. However, rising inflation has prompted the Fed to tighten its monetary policy and speed up the tapering of its quantitative easing. Expectations of hikes in the federal funds rate in 2022 also strengthened. In consequence, as the chart below shows, bond yields rose, especially those short- and medium-term, creating downward pressure on gold prices. Thus, we’ve learned two important lessons in 2021: don’t just count on inflation, and don’t fight with the (hawkish) Fed. As you can see, bond yields haven’t returned to their pre-pandemic level yet. Although they don’t have to fully recover, they do have room for further increases. The issue here is that when inflation peaks and disinflation starts, inflation expectations could decline, boosting the real interest rates. Actually, market-based inflation expectations already peaked in November, as shown in the chart below. This indicates that worries about inflation had calmed and investors had regained some confidence in the US central bank’s ability to contain upward price pressure.   Implications for Gold Will 2022 be better for gold than 2021? It’s possible, but I’m not an optimist. I mean here: macroeconomic conditions will turn more bearish for gold. Despite the spreading of Omicron variant of coronavirus, 2022 could mark the end of the global Covid-19 epidemic with a full economic recovery and a return to normal conditions. Fiscal policy will tighten, while the Fed will adopt a more hawkish monetary policy than in 2021. Supply shocks are easing, so inflation may peak, while real interest rates go up further. Moreover, the US dollar may strengthen against the euro, as the ECB is slower with its monetary policy tightening. On the other hand, there are also some factors that could support gold prices. In 2021, GDP rebounded greatly after the economic crisis of 2020, and financial markets also recovered robustly. 2022 may be more challenging for economic growth and the financial sector, though. One thing is the base effect, while another is central banks’ policy normalization and rising interest rates. With massive public and private debts, the Fed’s tightening cycle could deflate asset and credit bubbles and even trigger a recession, or at least a market correction. However, there are no signs of market stress yet, so a financial crisis is not in my baseline scenario for the next year. 2023 (or even later) is a more probable timeframe. Hence, I believe that the end of 2022 may be better for gold than the beginning of the year, as mere expectations of the Fed’s tightening cycle could be replaced by worries about the consequences of interest rate hikes. Anyway, 2021 is (almost) dead. Long live 2022! I wish you a return to normalcy, shining profits and all the golden next year! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Sector Themes In Play In The Markets For 2022

Sector Themes In Play In The Markets For 2022

Chris Vermeulen Chris Vermeulen 31.12.2021 16:45
As 2021 closes, it’s time to consider how sector themes in the markets are likely to perform in 2022. Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine. Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:Fed actions.International conflicts (i.e., Russia and China).Pandemic developments that are not currently known.There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!sector theme DRIVERS FOR 2022Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.Sign up for my free trading newsletter so you don’t miss the next opportunity! Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.Let’s look at some sector themes and individual names to keep an eye on in 2022.ECONOMIC NORMALIZATIONA long-anticipated return to a “normal” economy will continue to be a theme -- we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.5G INTERNETThe much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.ARTIFICIAL INTELLIGENCEIn all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM. EVs and AUTONOMOUS VEHICLESElectric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.MATERIALS and MININGGold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential. Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.SEMICONDUCTORSThe market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.REAL ESTATEReal Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.SUMMARYMany sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.Let’s remain vigilant for possible market corrections and may the wind be at our backs!Want to learn more about our Options Trading Service?Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to check it out, click here: TheTechnicalTraders.com.Enjoy your day!
Fed Hawks Grow Stronger. Will Gold Stand Its Ground?

Fed Hawks Grow Stronger. Will Gold Stand Its Ground?

Arkadiusz Sieron Arkadiusz Sieron 06.01.2022 16:43
  2022 may be the year of Fed hawks. After tapering, they may hike rates and then start quantitative tightening. Will they tear gold apart? During the Battle of the Black Gate in the War of the Ring, Pippin : “The eagles are coming!”. It was a sign of hope for all those fighting with Sauron. Now, I could exclaim that hawks are coming, but that wouldn’t necessarily give hope to anyone fighting the bearish trends in the gold market. Yesterday (January 5, 2022), the FOMC published the minutes from its last meeting, held in mid-December. Although the publication doesn’t reveal any revolutions in US monetary policy, it strengthens the hawkish rhetoric of the Fed. Why? First, the FOMC participants acknowledged that inflation readings had been higher, more persistent, and widespread than previously anticipated. For instance, they pointed to the fact that the trimmed mean PCE inflation rate, which trims the most extreme readings and is calculated by the Dallas Fed, had reached 2.81% in November 2021, the highest level since mid-1992, as the chart below shows. It indicates that inflation is not limited to a few categories but has a broad-based character. The Committee members also noted several factors that could support strong inflationary pressure this year. They mentioned rising housing costs and rents, more widespread wage growth driven by labor shortages, and more prolonged global supply-side frictions, which could be exacerbated by the emergence of the Omicron variant; as well as easier passing on higher costs of labor and material to customers. In particular, supply chain bottlenecks and labor shortages could likely last longer and be more widespread than previously thought, which could limit businesses’ ability to address strong demand. Second, the FOMC admitted that the US labor market could be tighter than previously thought. They judged that it could reach maximum employment very soon, or that it had largely achieved it, as indicated by near-record rates of quits and job vacancies, labor shortages, and an acceleration in wage growth: Many participants judged that, if the current pace of improvement continued, labor markets would fast approach maximum employment. Several participants remarked that they viewed labor market conditions as already largely consistent with maximum employment. The consequence of higher inflation and a tighter labor market would be, of course, a more hawkish monetary policy. Although the central bankers didn’t discuss the appropriate number of interest rate hikes, they agreed that they should raise the federal funds rate sooner or faster: Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Additionally, Fed officials also discussed quantitative tightening. They generally agreed that – given fast economic growth, a strong labor market, high inflation, and bigger Fed assets – the balance sheet runoff should start closer to the policy rate liftoff and be faster than in the previous normalization episode: Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate. However, participants judged that the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the Committee's previous experience. They noted that current conditions included a stronger economic outlook, higher inflation, and a larger balance sheet and thus could warrant a potentially faster pace of policy rate normalization.   Implications for Gold What do the recent FOMC minutes imply for the gold market? Well, referring once more to the Lord of the Rings, they are more like the Nazgûl that wreak despair rather than the Eagles offering hope. They were hawkish – and, thus, negative for gold prices. The minutes revealed that after tapering of quantitative easing, the Fed could also reduce its overall asset holdings to curb high inflation. In December, the US central bank accelerated the pace of tapering and signaled three interest rate increases in 2022. The minutes went even further, signaling a possibility of an earlier and faster rate hike and outright reduction in the Fed’s balance sheet: Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures. Hence, the price of gold responded accordingly to the FOMC minutes and declined from about $1,825 to $1,810, as the chart below shows. Luckily, there is a silver lining: the drop hasn’t been too big, at least so far. It may indicate that a lot of hawkish news has already been priced into gold, and that sentiment is rather bullish. However, the hawks haven’t probably said the last word yet. Please remember that the composition of the Committee will be more hawkish this year, but also that the mindset is changing among the members. For example, Minneapolis Fed President Neel Kashkari, one of the Committee’s most dovish members, said this week that the U.S. central bank would have to need to raise interest rates two times this year. Previously, he believed that the federal funds rate could stay at zero until at least 2024. Thus, although inflationary risk may provide support for gold, the yellow metal may find itself under hawkish fire in the upcoming weeks. We will see whether it will stand its ground, like the soldiers of Gondor. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold - Fed moves are likely to reveal the shape of the future

Gold - Fed moves are likely to reveal the shape of the future

Arkadiusz Sieron Arkadiusz Sieron 11.01.2022 15:10
  Job creation disappointed in December. However, it could not be enough to counterweight rising real interest rates and save gold. On Thursday (January 6, 2022), I wrote that “the metal may find itself under hawk fire in the upcoming weeks”. Indeed, gold dropped sharply in the aftermath of the publication of the FOMC minutes. As the chart below shows, the hawkish Fed’s signal sent the price of the yellow metal from $1,826 to $1,789. This is because the minutes revealed that the Fed would be ready to cut its mammoth holdings of assets later this year. Previously, the US central bank was talking only about interest rate hikes and the ending of new asset purchases, i.e., quantitative easing. Now, the reverse process, i.e., quantitative tightening, is also on the table. What is surprising here is not the mere idea of shrinking the Fed’s assets – after all, they have risen to $8.7 trillion (see the chart above) – but its timing. Last time, the central bank started the normalization of its balance sheet only in 2018, nine years after the end of the Great Recession and four years after the completion of tapering. This time, QT may start within a few months after the end of tapering and the first interest rate hikes. It looks like 2022 will be a hot year for US monetary policy – and the gold market. Consequently, markets have been increasingly pricing in a more decisive Fed, which boosted bond yields. As the chart below shows, the long-term real interest rates (10-year TIPS) jumped from -1.06% at the end of 2021 to -0.73 at the end of last week. The upward move in the interest rates is fundamentally negative for gold prices.   Implications for Gold Luckily for the yellow metal, nonfarm payrolls disappointed in December. Last month, the US labor market rose, adding just 199,000 jobs (see the chart below), well short of consensus estimates of 400,000. This negative surprise lifted gold prices slightly on Friday (January 7, 2021). The latest employment report suggests that labor shortages and the spread of the Omicron variant of coronavirus are holding back job creation and the overall economy. However, gold bulls shouldn’t count on weak job gains to trigger a sustainable rally in the precious metals. This is because the American economy is still approaching full employment. The unemployment rate declined further to 3.9% from 4.2% in November, as the chart below shows. The drop confirms that the US labor market is very tight, so weak job creation won’t discourage the Fed from hiking the federal funds rate. As a reminder, in December, FOMC members forecasted the unemployment rate to be 4.3% at the end of 2021. What is crucial here is that disappointing job gains reflect labor shortages rather than weak demand. Additionally, wage growth remains pretty fast, despite the decline in the annual rate from 5.1% in November to 4.7% in December. The key takeaway is that, despite disappointing job creation, the US economy is moving quickly towards full employment. The unemployment rate is at 3.9%, very close to the pre-pandemic low of 3.7%. Hence, the latest employment situation report may only reinforce arguments for the Fed’s tightening cycle. This is fundamentally bad news for gold, as strengthened expectations of the interest rate hikes may boost real interest rates further and put the yellow metal under downward pressure. Some analysts believe that hawkish sentiment might be at its peak. I’m not so sure about that. I believe that monetary hawks haven’t said the last word yet, and that the normalization of the interest rates is still ahead of us. Anyway, Powell will appear in the Senate today, so we should get more clues about the prospects for monetary policy and gold this year. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Market in 2022: Fall and Revival?

Gold Market in 2022: Fall and Revival?

Arkadiusz Sieron Arkadiusz Sieron 07.01.2022 16:46
  2021 will be remembered as the year of inflation’s comeback and gold’s dissatisfying reaction to it. Will gold improve its behavior in 2022? You thought that 2020 was a terrible year, but we would be back to normal in 2021? Well, we haven’t quite returned to normal. After all, the epidemic is not over, as new strains of coronavirus emerged and spread last year. Actually, in some aspects, 2021 was even worse than 2020. Two years ago, the pandemic was wreaking havoc. Last year, both the pandemic and inflation were raging. To the great surprise of mainstream economists fixated on aggregate demand, 2021 would be recorded in chronicles as the year of the supply factors revenge and the great return of inflation. For years, the pundits have talked about the death of inflation and mocked anyone who pointed to its risk. Well, he who laughs last, laughs best. However, it’s laughter through inflationary tears. Given the highest inflation rate since the Great Stagflation, gold prices must have grown a lot, right? Well, not exactly. As the chart below shows, 2021 wasn’t the best year for the yellow metal. Gold lost almost 5% over the last twelve months. Although I correctly predicted that “gold’s performance in 2021 could be worse than last year”, I expected less bearish behavior. What exactly happened? From a macroeconomic perspective, the economy recovered last year. As vaccination progressed, sanitary restrictions were lifted, and risk appetite returned to the market, which hit safe-haven assets such as gold. What’s more, a rebound in economic activity and rising inflation prompted the Fed to taper its quantitative easing and introduce more hawkish rhetoric, which pushed gold prices down. As always, there were both ups and downs in the gold market last year. Gold started 2021 with a bang, but began plunging quickly amid Democrats’ success in elections, the Fed more optimistic about the economy, and rising interest rates. The slide lasted until late March, when gold found its bottom of $1,684. This is because inflation started to accelerate at that point, while the Fed was downplaying rising price pressures, gibbering about “transitory inflation”. The rising worries about high inflation and the perspective of the US central bank staying behind the curve helped gold reach $1,900 once again in early June. However, the hawkish FOMC meeting and dot-plot that came later that month created another powerful bearish wave in the gold market that lasted until the end of September. Renewed inflationary worries and rising inflation expectations pushed gold to $1,865 in mid-November. However, the Fed announced a tapering of its asset purchases, calming markets once again and regaining investors’ trust in its ability to control inflation. As consequence, gold declined below $1,800 once again and stayed there by the end of the year. What can we learn from gold’s performance in 2021? First of all, gold is not a perfect inflation hedge, as the chart below shows. I mean here that, yes, gold is sensitive to rising inflation, but a hawkish Fed beats inflation in the gold market. Thus, inflation is positive for gold only if the US central bank stays behind the curve. However, when investors believe that either inflation is temporary or that the Fed will turn more hawkish in response to upward price pressure, gold runs away into the corner. Royal metal, huh? Second, never underestimate the power of the dark… I mean, the hawkish side of the Fed – or simply, don’t fight the Fed. It turned out that the prospects of a very gradual asset tapering and tightening cycle were enough to intimidate gold. Third, real interest rates remain the key driver for gold prices. As one can see in the chart below, gold plunged each time bond yields rallied, in particular in February 2021, but also in June or November. Hence, gold positively reacts to inflation as long as inflation translates into lower real interest rates. However, if other factors – such as expectations of a more hawkish Fed – come into play and outweigh inflation, gold suffers. Great, we already know that 2021 sucked and why. However, will 2022 be better for the gold market? Although I have great sympathy for the gold bulls, I don’t have good news for them. It seems that gold’s struggle will continue this year, at least in the first months of 2022, as the Fed’s hiking cycle and rising bond yields would create downward pressure on gold. However, when the US central bank starts raising the federal funds rate, gold may find its bottom, as it did in December 2015, and begin to rally again. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Gold Plunged but Didn’t Knuckle Under to the Hawkish Fed

Gold Plunged but Didn’t Knuckle Under to the Hawkish Fed

Finance Press Release Finance Press Release 27.01.2022 14:17
The FOMC set the stage for a March interest rate hike, which was an aggressive signal. Gold got it and fell – but hasn't capitulated yet.The Battlecruiser Hawk is moving full steam ahead! The FOMC issued yesterday (January 26, 2022) its newest statement on monetary policy in which it strengthened its hawkish stance. First of all, the Fed admitted that it would start hiking interest rates “soon”:With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.Previously, the US central bank conditioned its tightening cycle on the situation in the labor market. The relevant part of the statement was as follows in December:With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment.The alteration implies that, in the Fed’s view, the US economy has reached maximum employment and is ready to lift the federal funds rate. Indeed, Powell reaffirmed it, saying:There’s quite a bit of room to raise interests without threatening the labor market. This is by so many measures a historically tight labor market — record levels of job openings, quits, wages are moving up at the highest pace they have in decades.Powell also clarified the timing, stating that “the Committee is of the mind to raise the federal funds rate at the March meeting.” This is not completely unexpected, but does mark a significant hawkish change in the Fed’s communication, which is negative for gold.Second, the FOMC reaffirmed its plan, announced in December, to end quantitative easing in early March. It means that in February, the Fed will buy only $20 billion of Treasuries and $10 billion of agency mortgage-backed securities, instead of the $40 and $20 purchased in January:The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month.Third, the FOMC is preparing for quantitative tightening. Together with the statement on monetary policy, it published “Principles for Reducing the Size of the Federal Reserve's Balance Sheet”. The Fed hasn’t yet determined the timing and pace of reducing the size of its mammoth balance sheet. However, we know that it will happen after the first hike in interest rates, so probably as soon as May or June. After all, as Powell admitted during his press conference, “the balance sheet is substantially larger than it needs to be (...). There’s a substantial amount of shrinkage in the balance sheet to be done.”Implications for GoldWhat does the recent FOMC statement imply for the gold market? The end of QE, the start of the hiking cycle, and then of QT – all packed within just a few months – is a big hawkish wave that could sink the gold bulls. The Fed hasn’t been so aggressive for years.Of course, maybe it’s just a great bluff, and the Fed will retreat to its traditional dovish stance soon when tightening monetary and financial conditions hit Wall Street and the real economy. However, with CPI inflation above 7%, mounting political pressure, and public outrage at costs of living, the US central bank has no choice but to tighten monetary policy, at least for the time being.It seems that gold got the message. The price of the yellow metal plunged more than $30 yesterday, as the chart below shows. Interestingly, gold started its decline before the statement was published, which may indicate more structural weakness. What is also disturbing is that gold was hit even though the FOMC statement came largely as expected.On the other hand, gold didn’t collapse, but it dropped only by thirty-some dollars, or about 1.6%. Given the importance and hawkishness of the FOMC meeting, it could have been worse. Yes, the hawkish message was expected, and some analysts even forecasted more aggressive actions, but gold clearly didn’t capitulate. Thus, there is hope (and turbulence in the stock market can also help here), although the upcoming weeks may be challenging for gold, which would have to deal with rising bond yields.If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Many Factors to Affect XAU This Year. What About The Past?

Many Factors to Affect XAU This Year. What About The Past?

Arkadiusz Sieron Arkadiusz Sieron 28.01.2022 10:38
  Gold’s fate in 2021 will be determined mainly by inflation and the Fed’s reaction to it. In the epic struggle between chaos and order, chaos has an easier task, as there is usually only one proper method to do a job – the job that you can screw up in many ways. Thus, although economists see a strong economic expansion with cooling prices and normalization in monetary policies in 2022, many things could go wrong. The Omicron strain of coronavirus or its new variants could become more contagious and deadly, pushing the world into the Great Lockdown again. The real estate crisis in China could lead the country into recession, with serious economic consequences for the global economy. Oh, by the way, we could see an escalation between China and Taiwan, or between China and the US, especially after the recent test of hypersonic missiles by the former country. Having said that, I believe that the major forces affecting the gold market in 2022 will be – similarly to last year’s – inflation and the Fed’s response to it. Considering things in isolation, high inflation should be supportive of gold prices. The problem here is that gold prefers high and rising inflation. Although the inflation rate should continue its upward move for a while, it’s likely to peak this year. Indeed, based on very simple monetarist reasoning, I expect the peak to be somewhere in the first quarter of 2022. This is because the lag between the acceleration in money supply growth (March 2020) and CPI growth (March 2021) was a year. The peak in the former occurred in February 2021, as the chart below shows. You can do the math (by the way, this is the exercise that turned out to be too difficult for Jerome Powell and his “smart” colleagues from the Fed). This is – as I’ve said – very uncomplicated thinking that assumes the stability of the lag between monetary impulses and price reactions. However, given the Fed’s passive reaction to inflation and the fact that the pace of money supply growth didn’t return to the pre-pandemic level, but stayed at twice as high, the peak in inflation may occur later. In other words, more persistent inflation is the major risk for the economy that many economists still downplay. The consensus expectation is that inflation returns to a level close to the Fed’s target by the end of the year. For 2021, the forecasts were similar. Instead, inflation has risen to about 7%. Thus, never underestimate the power of the inflation dragon, especially if the beast is left unchecked! As everyone knows, dragons love gold – and this feeling is mutual. The Saxo Bank, in its annual “Outrageous Predictions”, sees the potential for US consumer prices to rise 15% in 2022, as “companies bid up wages in an effort to find willing and qualified workers, triggering a wage-price spiral unlike anything seen since the 1970’s”. Actually, given the fact that millions of Americans left the labor market – which the Fed doesn’t understand and still expects that they will come back – this prediction is not as extreme as one could expect. I still hope that inflationary pressure will moderate this year, but I’m afraid that the fall may not be substantial. On the other hand, we have the Fed with its hawkish rhetoric and tapering of quantitative easing. The US central bank is expected to start a tightening cycle, hiking the federal funds rate at least twice this year. It doesn’t sound good for gold, does it? A hawkish Fed implies a stronger greenback and rising real interest rates, which is negative for the yellow metal. As the chart below shows, the normalization of monetary policy after the Great Recession, with the infamous “taper tantrum”, was very supportive of the US dollar but lethal for gold. However, the price of gold bottomed in December 2015, exactly when the Fed hiked the interest rates for the first time after the global financial crisis. Markets are always future-oriented, so they often react more to expected rather than actual events. Another thing is that the Fed’s tightening cycle of 2015-2018 was dovish and the federal funds rate (and the Fed’s balance sheet) never returned to pre-crisis levels. The same applies to the current situation: despite all the hawkish reactions, the Fed is terribly behind the curve. Last but not least, history teaches us that a tightening Fed spells trouble for markets. As a reminder, the last tightening cycle led to the reversal of the yield curve in 2019 and the repo crisis, which forced the US central bank to cut interest rates, even before anyone has heard of covid-19. Hence, the Fed is in a very difficult situation. It either stays behind the curve, which risks letting inflation get out of control, or tightens its monetary policy in a decisive manner, just like Paul Volcker did in the 1980s, which risks a correction of already-elevated asset prices and the next economic crisis. Such expectations have boosted gold prices since December 2015, and they could support the yellow metal today as well. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
XAU Stays Strong, But Went Below The "Iconic" Value

XAU Stays Strong, But Went Below The "Iconic" Value

Arkadiusz Sieron Arkadiusz Sieron 01.02.2022 16:30
  Gold fought valiantly, gold fought nobly, gold fought honorably. Despite all this sacrifice, it lost the battle. How will it handle the next clashes? Have you ever felt trapped in the tyranny of the status quo? Have you ever felt constrained by some invisible yet powerful forces trying to thwart the fullest realization of your potential? I guess this is what gold would feel like right now – if metals could feel anything, of course. Please take a look at the chart below. As you can see, January looked to be quite good for the yellow metal. Its price surpassed the key level of $1,800 at the end of 2021, rallying from $1,793 to $1,847 on January 25, 2022. Then the evil FOMC published its hawkish statement on monetary policy. In its initial response, gold slid. That’s true, but it bravely defended its positions above $1,800 during both Wednesday and Thursday. There was still hope. However, on Friday, the metal capitulated and plunged to $1,788. Here we are again – below the level of $1,800 that gold hasn’t been able to exceed for more than several days since mid-2021, as the chart below shows. Am I disappointed? A bit. Naughty goldie! Am I surprised? Not at all. Although I cheered the recent rally, I was unconvinced about its sustainability in the current macroeconomic context, i.e., economic recovery with tightening of monetary policy (the surprisingly positive report on GDP in the fourth quarter of 2021 didn’t probably help gold), rising interest rates, and possibly a not-distant peak in inflation. In the previous edition of the Fundamental Gold Report, I described the Fed’s actions as “a big hawkish wave that could sink the gold bulls” and pointed out that “gold started its decline before the statement was published, which may indicate more structural weakness.” I added that it was also disturbing that “gold was hit even though the FOMC statement came largely as expected.” Last but not least, I concluded my report with a warning that “the upcoming weeks may be challenging for gold, which would have to deal with rising bond yields.” My warning came true very quickly. Of course, we cannot exclude a relatively swift rebound. After all, gold can be quite volatile in the short-term, and this year could be particularly turbulent for the yellow metal. However, I’m afraid that the balance of risks for gold is the downside. Next month (oh boy, it’s February already!), we will see the end of quantitative easing and the first hike in the federal funds rate, followed soon by the beginning of quantitative tightening and further rate hikes. Using its secret magic, the Fed has convinced the markets that it has become a congregation of hawks, or even a cult of the Great Hawk. According to the CME Fed Tool, future traders have started to price in five 25-basis-point raises this year, while some investors believe that the Fed will lift interest rates by 50 basis points in March. All these clearly hawkish expectations led to the rise in bond yields (see the chart below), creating downward pressure on gold.   Implications for Gold What does the recent plunge in gold prices imply for investors? Well, in a sense, nothing, as short-term price movements shouldn’t affect long-term investments. Trading and investing should be kept separate. However, gold’s return below $1,800 can disappoint even the biggest optimists. The yellow metal failed again. Not the first and not the last time, though. In my view, gold may struggle by March, as all these hawkish expectations will exert downward pressure on the yellow metal. In 2015, the first hike in the tightening cycle coincided with the bottom of the gold market. It may be similar this time, as the actual hike could ease some of the worst expectations and also push markets to think beyond their tightening horizon. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Gold Ended January Glued to $1,800. Will It Ever Detach?

Gold Ended January Glued to $1,800. Will It Ever Detach?

Finance Press Release Finance Press Release 03.02.2022 16:57
  Gold didn’t shine in January. The struggle could continue, although the more distant future looks more optimistic for the yellow metal. That was quick! January has already ended. Welcome to February! I hope that this year has started well for you. For gold, the first month of 2022 wasn’t particularly good. As the chart below shows, the yellow metal lost about $11 of its value, or less than 1%, during January. This is the bad side of the story. The ugly side is that gold wasn’t able to maintain its position above $1,800, even though geopolitical risks intensified, while inflation soared to the highest level in 40 years! The yellow metal surpassed the key level in early January and stayed above this level for most of the time, even rallying above $1,840 in the second half of the month. But gold couldn’t hold out and plunged at the end of January, triggered by a hawkish FOMC meeting. However, there is also a good side. Gold is still hovering around $1,800 despite the upcoming Fed’s tightening cycle and all the hawkish expectations about the US monetary policy in 2022. The Fed signaled the end of tapering of quantitative easing by March, the first hike in the federal funds rate in the same month, and the start of quantitative tightening later this year. Meanwhile, in the last few weeks, the markets went from predicting two interest rate hikes to five. Even more intriguing, and perhaps encouraging as well, is that the real interest rates have increased last month, rising from -1% to -0.6%. Gold is usually negatively correlated with the TIPS yields, but this time it stayed afloat amid rising rates.   Implications for Gold What does gold’s behavior in January imply for its 2022 outlook? Well, I must admit that I expected gold’s performance to be worse. Last month showed that gold simply don’t want to either go down (or up), but it still prefers to go sideways, glued to the $1,800 level. The fact that strengthening expectations of the Fed’s tightening cycle and rising real interest rates didn’t plunge gold prices makes me somewhat more optimistic about gold’s future. However, I still see some important threats to gold. First of all, some investors are still underpricing how hawkish the Fed could become to combat inflation. Hence, the day of reckoning could still be ahead of us. You see, just today, the Bank of England hiked its policy rate by 25 basis points, although almost half of the policymakers wanted to raise interest rates by half a percentage point. Second, the market seems to be biased downward, with lower and lower peaks since August 2020. Having said that, investors should remember that what the Fed says it will do and what it ends up doing are often very different. When the Fed says it will be dovish, it will be dovish. But when the Fed says it will be hawkish, it says so. This is because a monetary tightening could be painful for asset valuations and all the debtors, including Uncle Sam. The US stock market already saw significant losses in January. As the chart below shows, the S&P 500 Index lost a few hundred points last month, marking the worst decline since the beginning of the pandemic. Thus, the Fed won’t risk recession in its fight with inflation, especially if it peaks this year, and would try to engineer a soft-landing. Hence, the Fed could reverse its stance relatively soon, especially that it’s terribly late with its tightening. However, as long as the focus is on monetary policy tightening, gold is likely to struggle within its tight range. Some policymakers and economists have argued that the emergence from the COVID-19 pandemic is more like a postwar demobilization and conversion to a civilian industry than a normal business cycle. White House economists have compared the current picture to the rapid increases in 1947, caused by the end of price controls in conjunction with supply chain problems and pent-up demand after the war (“Historical Parallels to Today’s Inflationary Episode”, Council of Economic Advisers, July 6, 2021). The problem with this analogy is that it is only one instance from more than 70 years ago. More recent and more frequent inflation episodes have generally been ended by a recession or a mid-cycle slowdown. Price pressures have an internal momentum of their own and tend to intensify rather than lessen as the business cycle becomes more mature and the margin of spare capacity shrinks in all markets. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Price Of Gold Update By GoldViewFX

How the Fed Will Affect Gold? Let's Take A Look Back...

Arkadiusz Sieron Arkadiusz Sieron 04.02.2022 14:47
  Beware, the Fed’s tightening of monetary policy could lift real interest rates! For gold, this poses a risk of prices wildly rolling down. The first FOMC meeting in 2022 is behind us. What can we expect from the US central bank this year and how will it affect the price of gold? Well, this year’s episode of Fed Street will be sponsored by the letter “T”, which stands for “tightening”. It will consist of three elements. First, quantitative easing tapering. The asset purchases are going to end by early March. To be clear, during tapering, the Fed is still buying securities, so it remains accommodative, but less and less. Tapering has been very gradual and well-telegraphed to the markets, so it’s probably already priced in gold. Thus, the infamous taper tantrum shouldn’t replay. Second, quantitative tightening. Soon after the end of asset purchases, the Fed will begin shrinking its mammoth balance sheet. As the chart below shows, it has more than doubled since the start of the pandemic, reaching about $9 trillion, or about 36% of the country’s GDP. It’s so gigantic that even Powell admitted during his January press conference that “the balance sheet is substantially larger than it needs to be.” Captain Obvious attacked again! In contrast to tapering, which just reduces additions to the Fed’s holdings, quantitative tightening will shrink the balance sheet. How much? It’s hard to say. Last time, during QT from 2017 to 2019, the Fed started unloading $10 billion in assets per month, gradually lifting the cap to $50 billion. Given that inflation is now much higher, and the Fed has greater confidence in the economic recovery, the scale of reduction would probably be higher. The QT will create upward pressure on interest rates, which could be negative for the gold market. However, QT will be a very gradual and orderly process. Instead of selling assets directly, the US central bank will stop reinvestment of proceeds as securities run off. As we can read in “Principles for Reducing the Size of the Federal Reserve's Balance Sheet”, The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account. What’s more, the previous case of QT wasn’t detrimental to gold, as the chart below shows. The price of gold started to rally in late 2018 and especially later in mid-2019. Third, the hiking cycle. In March, the Fed is going to start increasing the federal funds rate. According to the financial markets, the US central bank will enact five interest rate hikes this year, raising the federal funds rate to the range of 1.25-1.50%. Now, there are two narratives about American monetary policy in 2022. According to the first, we are witnessing a hawkish revolution within the Fed, as it would shift its monetary stance in a relatively short time. The central bank will “double tighten” (i.e., it will shrink its balance sheet at the same time as hiking rates), and it will do it in a much more aggressive way than after the Great Recession. Such decisive moves will significantly raise the bond yields, which will hit gold prices. However, in this scenario, the Fed’s aggressive actions will eventually lead to the inversion of the yield curve and later to recession, which should support the precious metals market. On the other hand, some analysts point out that central bankers are all talk and – given their dovish bias – act less aggressively than they promise, chickening out in the face of the first stock market turbulence. They also claim that all the Fed’s actions won’t be enough to combat inflation and that monetary conditions will remain relatively loose. For example, Stephen Roach argues that “the Fed is so far behind [the curve] that it can’t even see the curve.” Indeed, the real federal funds rate is deeply negative (around -7%), as the chart below shows; and even if inflation moderates to 3.5% while the Fed conducts four hikes, it will remain well below zero (about -2%), providing some support for gold prices. Which narrative is correct? Well, there are grains of truth in both of them. However, I would like to remind you that what really matters for the markets is the change or direction, not the level of a variable. Hence, the fact that real interest rates are to stay extremely low doesn’t guarantee that gold prices won’t decline in a response to the hiking cycle. Actually, as the chart above shows, the upward reversal in the real interest rates usually plunges gold prices. Given that real rates are at a record low, a normalization is still ahead of us. Hence, unless inflation continues to rise, bond yields are likely to move up, while gold – to move down. Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
The Question Is How Will Price Of Gold Act In Times Of ECB Meeting

The Question Is How Will Price Of Gold Act In Times Of ECB Meeting

Arkadiusz Sieron Arkadiusz Sieron 10.02.2022 16:22
  Lagarde opened the door to an interest rate hike, which gave the European Central Bank a hawkish demeanor. Does it also imply more bullish gold? The ECB has awoken from its ultra-dovish lethargy. In December 2021, the central bank of the Eurozone announced that its Pandemic Emergency Purchase Program would end in March 2022. Although this won’t also mean the end of quantitative easing as the ECB continues to buy assets under the APP program, the central bank will be scaling down the pace of purchases this year. Christine Lagarde, the ECB’s President, admitted it during her press conference held last week. She said: “We will stop the Pandemic Emergency Programme net asset purchases in March and then we will look at the net asset purchases under the APP.” She also left the door open for the interest rates to be raised. Of course, Lagarde did not directly signal the rate hikes. Instead, she pointed out the upside risk of inflation and acknowledged that the macroeconomic conditions have changed: We are going to use all instruments, all optionalities in order to respond to the situation – but the situation has indeed changed. You will have noticed that in the monetary policy statement that I just read, we do refer to the upside risk to inflation in our projection. So the situation having changed, we need to continue to monitor it very carefully. We need to assess the situation on the basis of the data, and then we will have to take a judgement. What’s more, Lagarde didn’t repeat her December phrase that raising interest rates in 2022 is “very unlikely”. When asked about that, she replied: as I said, I don’t make pledges without conditionalities and I did make those statements at our last press conference on the basis of the assessment, on the basis of the data that we had. It was, as all pledges of that nature, conditional. So what I am saying here now is that come March, when we have additional data, when we’ve been able to integrate in our analytical work the numbers that we have received in the last few days, we will be in a position to make a thorough assessment again on the basis of data. I cannot prejudge what that will be, but we are only a few weeks away from the closing time at which we provide the analytical work, prepare the projections for the Governing Council, and then come with some recommendations and make our decisions. It sounds very innocent, but it’s worth remembering that Lagarde is probably the most dovish central banker in the world (let’s exclude Turkish central bankers who cut interest rates amid high inflation, but they are under political pressure from Erdogan). After all, global monetary policy is tightening. For example, last week, the Bank of England hiked its main policy rate by 25 basis points and started quantitative tightening. Even the Fed will probably end quantitative easing and start raising the federal funds rate in March. In such a company, the ECB seems to be a reckless laggard. Hence, even very shy comments mean something in the case of this central bank. The markets were so impressed that they started to price in 50 basis points of rate hikes this year, probably in an exaggerated reaction.   Implications for Gold What does the latest ECB monetary policy meeting mean for the gold market? Well, maybe it wasn’t an outright revolution, but the ECB is slowly reducing its massive monetary stimulus. Although the euro area does not face the inflationary pressure of the same kind as the US, with inflation that soared to 5% in December and to 5.1% in January (according to the initial estimate), the ECB simply has no choice. As the chart below shows, inflation in the Eurozone is the highest in the whole history of euro. Additionally, in the last quarter of 2021, the GDP of the euro area finally reached its pre-pandemic level, two quarters later than in the case of the US. Europe is back in the game. The economic recovery strengthens the hawkish camp within the ECB. All of this is fundamentally bullish for gold prices. To be clear, don’t expect that Christine Lagarde will turn into Paul Volcker and hike interest rates in a rush. Given the structural problems of the euro area, the ECB will lag behind the Fed and remain relatively more dovish. However, German bond yields have recently risen, and there is still room for further increases. If the market interest rates go up more in Europe than across the pond, which is likely given the financial tightening that has already occurred in the US, the spread between American and German interest rates could narrow further (see the chart below). The narrowing divergence between monetary policies and interest rates in the US and in the Eurozone should strengthen the euro against the greenback – and it should be supportive of gold. As the chart above shows, when the spread was widening in 2012-2018, gold was in the bear market. The yellow metal started its rally at the end of 2018, just around the peak of the spread. On the other hand, if the divergence intensifies, gold will suffer. Given that Powell is expected to hike rates as soon as March, while Lagarde may only start thinking about the tightening cycle, we may have to wait a while for the spread to peak. One thing is certain: it can get hot in March! If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Is It Worth Adding Gold to Your Portfolio in 2022?

Is It Worth Adding Gold to Your Portfolio in 2022?

Arkadiusz Sieron Arkadiusz Sieron 17.02.2022 16:29
  Gold prices declined in 2021 and the prospects for 2022 are not impressive as well. However, the yellow metal’s strategic relevance remains high. Last month, the World Gold Council published two interesting reports about gold. The first one is the latest edition of Gold Demand Trends, which summarizes the entire last year. Gold supply decreased 1%, while gold demand rose 10% in 2021. Despite these trends, the price of gold declined by around 4%, which – for me – undermines the validity of the data presented by the WGC. I mean here that the relevance of some categories of gold demand (jewelry demand, technological demand, the central bank’s purchases) for the price formation is somewhat limited. The most important driver for gold prices is investment demand. Unsurprisingly, this category plunged 43% in 2021, driven by large ETF outlfows. According to the report, “gold drew direction chiefly from inflation and interest rate expectations in 2021,” although it seems that rising rates outweighed inflationary concerns. As the chart below shows, the interest rates increased significantly last year. For example, 10-year Treasury yields rose 60 basis points. As a result, the opportunity costs for holding gold moved up, triggering an outflow of gold holdings from the ETF. As the rise in interest rates is likely to continue in 2022 because of the hawkish stance of the Fed, gold investment may struggle this year as well. The end of quantitative easing and the start of quantitative tightening may add to the downward pressure on gold prices. However, there are some bullish caveats here. First, gold has remained resilient in January, despite the hawkish FOMC meeting. Second, the Fed’s tightening cycle could be detrimental to the US stock market and the overall, highly indebted economy, which could be supportive of gold prices. Third, as the report points out, “gold has historically outperformed in the months following the onset of a US Fed tightening cycle”. The second publication released by the WGC last month was “The Relevance of Gold as a Strategic Asset 2022”. The main thesis of the report is that gold is a strategic asset, complementary to equities and bonds, that enhances investment portfolios’ performance. This is because gold is “a store of wealth and a hedge against systemic risk, currency depreciation, and inflation.” It is also “highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.” Gold is believed to be a great source of return, as its price has increased by an average of nearly 11% per year since 1971, according to the WGC. Gold can also provide liquidity, as the gold market is highly liquid. As the report points out, “physical gold holdings by investors and central banks are worth approximately $4.9 trillion, with an additional $1.2 trillion in open interest through derivatives traded on exchanges or the over-the-counter (OTC) market.” Last but not least, gold is an excellent portfolio diversifier, as it is negatively correlated with risk assets, and – importantly – this negative correlation increases as these assets sell off. Hence, adding gold to a portfolio could diversify it, improving its risk-adjusted return, and also provide liquidity to meet liabilities in times of market stress. The WGC’s analysis suggests that investors should consider adding between 4% and 15% of gold to the portfolio, but personally, I would cap this share at 10%.   Implications for Gold What do the recent WGC reports imply for the gold market? Well, one thing is that adding some gold to the investment portfolio would probably be a smart move. After all, gold serves the role of both a safe-haven asset and an insurance against tail risks. It’s nice to be insured. However, investing in gold is something different, as gold may be either in a bullish or bearish trend. You should never confuse these two motives behind owning gold! Sometimes it’s good to own gold for both insurance and investment reasons, but not always. When it comes to 2022, investment demand for gold may continue to be under downward pressure amid rising interest rates. However, there are also some bullish forces at work, which could intensify later this year. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
Fed’s Tightening Cycle: Bullish or Bearish for Gold?

Fed’s Tightening Cycle: Bullish or Bearish for Gold?

Finance Press Release Finance Press Release 04.03.2022 16:14
This month, the Fed is expected to hike interest rates. Contrary to popular belief, the tightening doesn't have to be adverse for gold. What does history show?March 2022 – the Fed is supposed to end its quantitative easing and hike the federal funds rate for the first time during recovery from a pandemic crisis . After the liftoff, the Fed will probably also start reducing the size of its mammoth balance sheet and raise interest rates a few more times. Thus, the tightening of monetary policy is slowly becoming a reality. The golden question is: how will the yellow metal behave under these conditions?Let’s look into the past. The last tightening cycle of 2015-2019 was rather positive for gold prices. The yellow metal rallied in this period from $1,068 to $1,320 (I refer here to monthly averages), gaining about 24%, as the chart below shows.What’s really important is that gold bottomed out in December 2015, the month of the liftoff. Hence, if we see a replay of this episode, gold should detach from $1,800 and go north, into the heavenly land of bulls. However, in December 2015, real interest rates peaked, while in January 2016, the US dollar found its local top. These factors helped to catapult gold prices a few years ago, but they don’t have to reappear this time.Let’s dig a bit deeper. The earlier tightening cycle occurred between 2004 and 2006, and it was also a great time for gold, despite the fact that the Fed raised interest rates by more than 400 basis points, something unthinkable today. As the chart below shows, the price of the yellow metal (monthly average) soared from $392 to $634, or more than 60%. Just as today, inflation was rising back then, but it was also a time of great weakness in the greenback, a factor that is currently absent.Let’s move even further back into the past. The Fed also raised the federal funds rate in the 1994-1995 and 1999-2000 periods. The chart below shows that these cases were rather neutral for gold prices. In the former, gold was traded sideways, while in the latter, it plunged, rallied, and returned to a decline. Importantly, just as in 2015, the yellow metal bottomed out soon after the liftoff in early 1999.In the 1980s, there were two major tightening cycles – both clearly negative for the yellow metal. In 1983-1984, the price of gold plunged 29% from $491 to $348, despite rising inflation, while in 1988-1989, it dropped another 12%, as you can see in the chart below.Finally, we have traveled back in time to the Great Stagflation period! In the 1970s, the Fed’s tightening cycles were generally positive for gold, as the chart below shows. In the period from 1972 to 1974, the average monthly price of the yellow metal soared from $48 to $172, or 257%. The tightening of 1977-1980 was an even better episode for gold. Its price skyrocketed from $132 to $675, or 411%. However, monetary tightening in 1980-1981 proved not very favorable , with the yellow metal plunging then to $409.What are the implications of our historical analysis for the gold market in 2022? First, the Fed’s tightening cycle doesn’t have to be bad for gold. In this report, I’ve examined nine tightening cycles – of which four were bullish, two were neutral, and three were bearish for the gold market. Second, all the negative cases occurred in the 1980s, while the two most recent cycles from the 21st century were positive for gold prices. It bodes well for the 2022 tightening cycle.Third, the key is, as always, the broader macroeconomic context – namely, what is happening with the US dollar, inflation, and real interest rates. For example, in the 1970s, the Fed was hiking rates amid soaring inflation. However, in March 1980, the CPI annul rate peaked, and a long era of disinflation started. This is why tightening cycles were generally positive in the 1970s, and negative in the 1980s.Hence, it seems on the surface that the current tightening should be bullish for gold, as it is accompanied by high inflation. However, inflation is expected to peak this year. If this happens, real interest rates could increase even further, creating downward pressure on gold prices. Please remember that the real federal funds rate is at a record low level. If inflation peaks, gold bulls’ only hope will be either a bearish trend in the US dollar (amid global recovery and ECB’s monetary policy tightening) or a dovish shift in market expectations about the path of the interest rates, given that the Fed’s tightening cycle has historically been followed by an economic slowdown or recession.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Gold Likes Recessions - Could High Interest Rates Lead to One?

Gold Likes Recessions - Could High Interest Rates Lead to One?

Finance Press Release Finance Press Release 11.03.2022 16:52
We live in uncertain times, but one thing is (almost) certain: the Fed’s tightening cycle will be followed by an economic slowdown – if not worse.There are many regularities in nature. After winter comes spring. After night comes day. After the Fed’s tightening cycle comes a recession. This month, the Fed will probably end quantitative easing and lift the federal funds rate. Will it trigger the next economic crisis?It’s, of course, more nuanced, but the basic mechanism remains quite simple. Cuts in interest rates, maintaining them at very low levels for a prolonged time, and asset purchases – in other words, easy monetary policy and cheap money – lead to excessive risk-taking, investors’ complacency, periods of booms, and price bubbles. On the contrary, interest rate hikes and withdrawal of liquidity from the markets – i.e., tightening of monetary policy – tend to trigger economic busts, bursts of asset bubbles, and recessions. This happens because the amount of risk, debt, and bad investments becomes simply too high.Historians lie, but history – never does. The chart below clearly confirms the relationship between the Fed’s tightening cycle and the state of the US economy. As one can see, generally, all recessions were preceded by interest rate hikes. For instance, in 1999-2000, the Fed lifted the interest rates by 175 basis points, causing the burst of the dot-com bubble. Another example: in the period between 2004 and 2006, the US central bank raised rates by 425 basis points, which led to the burst of the housing bubble and the Great Recession.One could argue that the 2020 economic plunge was caused not by US monetary policy but by the pandemic. However, the yield curve inverted in 2019 and the repo crisis forced the Fed to cut interest rates. Thus, the recession would probably have occurred anyway, although without the Great Lockdown, it wouldn’t be so deep.However, not all tightening cycles lead to recessions. For example, interest rate hikes in the first half of the 1960s, 1983-1984, or 1994-1995 didn’t cause economic slumps. Hence, a soft landing is theoretically possible, although it has previously proved hard to achieve. The last three cases of monetary policy tightening did lead to economic havoc.It goes without saying that high inflation won’t help the Fed engineer a soft landing. The key problem here is that the US central bank is between an inflationary rock and a hard landing. The Fed has to fight inflation, but it would require aggressive hikes that could slow down the economy or even trigger a recession. Another issue is that high inflation wreaks havoc on its own. Thus, even if untamed, it would lead to a recession anyway, putting the economy into stagflation. Please take a look at the chart below, which shows the history of US inflation.As one can see, each time the CPI annul rate peaked above 5%, it was either accompanied by or followed by a recession. The last such case was in 2008 during the global financial crisis, but the same happened in 1990, 1980, 1974, and 1970. It doesn’t bode well for the upcoming years.Some analysts argue that we are not experiencing a normal business cycle right now. In this view, the recovery from a pandemic crisis is rather similar to the postwar demobilization, so high inflation doesn’t necessarily imply overheating of the economy and could subsidy without an immediate recession. Of course, supply shortages and pent-up demand contributed to the current inflationary episode, but we shouldn’t forget about the role of the money supply. Given its surge, the Fed has to tighten monetary policy to curb inflation. However, this is exactly what can trigger a recession, given the high indebtedness and Wall Street’s addiction to cheap liquidity.What does it mean for the gold market? Well, the possibility that the Fed’s tightening cycle will lead to a recession is good news for the yellow metal, which shines the most during economic crises. Actually, recent gold’s resilience to rising bond yields may be explained by demand for gold as a hedge against the Fed’s mistake or failure to engineer a soft landing.Another bullish implication is that the Fed will have to ease its stance at some point in time when the hikes in interest rates bring an economic slowdown or stock market turbulence. If history teaches us anything, it is that the Fed always chickens out and ends up less hawkish than it promised. In other words, the US central bank cares much more about Wall Street than it’s ready to admit and probably much more than it cares about inflation.Having said that, the recession won’t start the next day after the rate liftoff. Economic indicators don’t signal an economic slump. The yield curve has been flattening, but it’s comfortably above negative territory. I know that the pandemic has condensed the last recession and economic rebound, but I don’t expect it anytime soon (at least rather not in 2022). It implies that gold will have to live this year without the support of the recession or strong expectations of it.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.