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  1. In a comment to MarketWatch last week we said that traders this week would be most focused on the CPI report that came out yesterday. In that very report, Inflation came in hot, above expectations, and posted its biggest monthly increase in August this year. It’s up 3.7% from a year ago. However, markets didn’t seem so fussed. The release did prompt them to make a sort-of gesture of a reaction – stock market futures initially fell back but soon recovered and had a choppy sort of day. Unsurprisingly, Treasury yields were higher as a result of the report. As we discussed in last week’s post, this kind of performance is proving to be poor for both gold and silver. A strong US dollar and high Treasury yields win the opportunity cost equation when it comes to which liquid assets one should hold in the short-term. However, as we also explained last week inflation still remains. The reason the US dollar and yields are so high is because of inflation. It is perverse given we all know what inflation really means for a currency, the economy and its citizens. However, this is a short-term phenomenon in the grand scheme of things. Headlines yesterday reported that transportation was one of the biggest victims when it came to inflation. This was largely blamed on oil prices. Whilst oil price hikes have slowed, the impact of a high price is yet to be fully felt in the economy. Wait until households feel the sustained increase in gas when filling up their cars week after week. How does that play into their inflation expectations? And how long before increased production costs feed into core inflation? A heavy analogy Not only that, but whilst economists congratulated themselves that the likes of goods and rents continue to disinflate, the harsh truth is that other key areas are still experiencing price rises – see healthcare and household furnishings as an example (h/t Omar Sharif, Inflation Insights). The spread of inflation is becoming broader, which in the short-term can make it feel like it’s less impactful. I like to think of it like an elephant wearing shoes (bear with me). When energy prices shot up (blamed on Russia) it was like an elephant wearing a stiletto had stood on the global economy. It was a very focused pain source. However, as the impact of terrible monetary policy, financial crises, pandemics etc has come to fruition, it’s now like the elephant is wearing trainers and standing on the economy. The weight is the same but the spread of the weight is across a broader area. So the pain feels significantly less. But what happens as the elephant gets comfy? There’s only so long you can cope with an elephant standing on you – whatever kind of shoes they’re wearing. Next week is the FOMC’s September meeting. No one is expecting much drama. Throughout the summer Fed members have been expressing their commitment to the inflation fight, citing the need to keep rates higher for longer. I highly recommend you grab a coffee and have a listen to my 13 minute interview with chart expert, Gareth Soloway. On Tuesday he outlines why he’s impressed by gold amongst the US dollar strength and why he considers this to be the Bad News is Good News part of the cycle. He also gives us his thoughts on silver (more about that next week). Expect $2,500 – $3,000 Gold In Next 12 Months ECB meeting More interesting today though is the ECB meeting. There was no doubt some hot debates going on amongst members. The Eurozone is expected to continue to overshoot its 3% inflation target, into next year. Members must have been asking themselves if they should hike to try to combat this? Is this wise given all signs look oddly recession-shaped? The Committee found itself in a coin toss of a decision and neither face is one that you want to risk right now. As it turns out they decided to hike rates to an all-time high of 25bp, to 4%. Unsurprisingly the Euro fell against the dollar. This is without question the ECB’s most significant decision in over a year. It indicates that the ECB is more worried about inflation staying above target than they were about a recession. Had the ECB decided to keep rates as is then markets may have considered it to be a sign of a weakness in their commitment to fight inflation. However, the decision to hike rates to an all-time high will also make markets nervous as the ECB may have just made what is almost certainly a guaranteed economic downturn, even worse. Where does that leave us? So where does that leave things? Nowhere we haven’t been before. Central bankers continue to grapple with inflation, to bring it down to an arbitrary level. An exercise in self-flagellation if there ever was one. With their meetings, press conferences and endless models, central bankers seem so convinced that there is a cookie cutter approach here. That they can use models and predictions to help them solve this crisis. But history shows us that life and economics are unpredictable and open-ended. There is no ideal solution here. A few groups of people are trying to make decisions based on pretty skewed models with data that isn’t always reflective of the right now, and certainly not the future. With this in mind we carry on. We add gold to portfolios and we continue to admire its strong position this year. It’s been remarkable given the US dollar and Treasury yields. So stand firm and ignore the noisy central bankers and data releases.
  2. It's that time of the month again when we bring in a top chart analyst to take us through what they're seeing in the markets, right now. This month we have the brilliant Gareth Soloway. Gareth explains why he's watching the US dollar and why that means that "Good news is bad news" and when we can expect to see when "Bad news is good news". Gareth expects we will see gold breaking through all-time highs in the next 12 months, and praises gold for remaining so close to it's all-time high. As for silver? Is there a longer, sustained rally for the industrial precious metal? Will it head over $30? And, if you are fan of gold miners you won't want to miss why Gareth's excited about them. Click below to watch
  3. Over the August period, it’s easy for people to switch off and to some extent, it might feel like the precious metals have been doing the very same! However, if you look at the YTD performance of gold across key currencies in the World Gold Council table provided below then you will take some heart that things aren’t so bad (especially if you bought in Turkish Lira!). But it does seem as though gold and silver have been under some pressure of late. This is largely thanks to the strengthening US dollar and US Treasury yields (they reached a 14-year high right before Labor Day weekend). Oil prices have also been rising. Interest rates and currencies have been relatively stable. All whilst the rest of the market seemed to take a bit of a tumble earlier this week. Why is this? Because things are looking up across a number of sectors and so there is a (new) expectation that the FOMC will keep interest rates at these relatively higher levels for longer. Therefore, it’s more attractive to hold US dollars than other liquid assets such as gold and silver, right now. Why Is the US Dollar So Strong? The strength of the US dollar is largely thanks to the fact that it is currently the biggest, bestest bully in a bad bunch. So strong is the US dollar against other currencies (namely Asian currencies) that both the Chinese and Japanese central banks have issued statements to warn that they will defend themselves should they feel the need to. This strong US dollar will exacerbate inflation across the world, of this we have little doubt. The majority of commodities (including oil) are priced in dollars. This makes imports expensive and so causes inflation to rise in countries that are already struggling with housing crises, cost of living crises and currency weakness. Weak growth across China (and calls for intervention from the central bank) is only boosting demand for the dollar more, as international savers and investors flock to it. Meanwhile market expectations suggest that both the UK and Eurozone may lower interest rates, sooner than the US given their own sluggish performances of late. This will only serve to boost dollar demand as it maintains its top-dog status when it comes to interest rates. There is little doubt that the US Treasury yield curve is the most important economic indicator right now. Since July 2022 it has been inverted and in the last month or so it has been steepening as long-dated rates have risen faster than short rates. A situation like this is tricky for assets such as gold. Investors tend to look at a yield curve such as this and expect that we are heading into a period of reflation and (therefore) further interest rate hikes. So, it is likely to be a tough period for gold. Especially, if we see periods when long and short term rates rise together. Why Do You Buy Gold? However…we always come back to this – why are you buying gold? Because it outperforms the dollar? No. Because it makes you a quick buck or two? No. You buy gold because it’s insurance for your portfolio. As perverse as it sounds – all the reasons why the US dollar is doing so well are the exact reasons why you should buy gold and hold onto it. Just because something is doing well, doesn’t mean that it is well. The US dollar is doing well relative to other currencies. The US country is doing well relative to other countries, largely because of dollar hegemony. This does not mean that the dollar is a safe asset. Currency markets are fickle. Think back to a few months ago when they were betting against the dollar. Expectations were that rate rises in the EU and UK would put pressure on the dollar, short positions were increasing. And, don’t forget the BRICS warming themselves up to use the dollar less and less. Patrick Karim on gold, inflation and the next break out It is still suffering and will suffer more, from the effects of very poor monetary policy. The currency and the economy have been inflated to never-imagined levels and the country is in a level of debt we struggle to write down numerically, in full. You do not buy gold because it is a competitor to a fiat currency, you buy gold because it secures your wealth when your portfolio is suffering the effects of decades long monetary abuse. A slow month or two for gold is not a sign that things are doing well, we would perhaps see this latest US dollar strength as the fat lady enjoying her moment, singing her head off.
  4. Buckle up, because India isn’t just racing on the path of economic transformation; it’s blazing a trail. We’re talking about a nation that has evolved from contributing just 6.3% of global GDP growth in 2007 to a projected 17.4% by 2028. The underdog is gaining ground on China, and gold investors might be the unexpected beneficiaries. The Shift in the Economic Landscape In Q1 2023, India’s GDP growth stood at an impressive 6.1%, leaving China’s 4.5% in the rearview mirror. If you think this is mere fluke, you’re missing the larger tapestry of a world reshaped by dynamic trade, open markets, and crucially, domestic reforms. People Power Consider this: India is now the world’s most populous country, overtaking China in April this year with a population of 1.4 billion. By 2027, India is expected to add 75 million more citizens, while China will lose 8 million. China’s ageing, plateauing middle class lacks the fuel for significant economic expansion. In contrast, India’s youthful, underemployed population is a powder keg waiting to explode—in a good way. The Pitfalls of Central Control China’s love affair with central planning doesn’t just come with a bouquet of red roses; it has its thorns. High-profile tech billionaires go missing only to resurface “humbled.” This iron grip stifles creativity and injects tension into international relations. On the flip side, India—boasting a global diaspora helming companies like Alphabet, Microsoft, and Adobe—capitalises on its reputation for entrepreneurial freedom. Apple’s choice to manufacture the iPhone 14 in India instead of China is a glaring example. The Achilles Heel But let’s not get carried away. India has hurdles to clear. Despite its enormous promise, the nation has a history of failing to capitalise on its economic potential. Although Indian PM Modi has ushered in crucial infrastructure and modernization programs, the ghosts of bureaucratic and social challenges still haunt India’s progress. The Numbers Game To put things into perspective, China’s GDP sits at a hefty $17.7 trillion compared to India’s $3.2 trillion. China outpaces India in STEM graduates, R&D investment, and literacy rates. But remember, China was once an underdog too. In the ’80s, its economy was smaller than India’s. If China can leapfrog its way to economic primacy, why can’t India? Gold: The X-Factor And here’s where gold comes in. In India, gold isn’t just a metal; it’s part of the national psyche. Indians are increasingly moving from rural to urban settings, changing the form in which they invest in gold—from jewellery to bars and coins. As India’s economy expands, so will its appetite for gold, making it a market impossible to ignore for global investors. The Long Road Ahead India might be where China was in the early 2000s. The recipe for success includes enhancing educational systems, modernising infrastructure, and steering focus towards cutting-edge sectors like AI. The nation needs to decide if it’s content with mere participation or becoming a serious player. . As India fine-tunes its focus, the world watches. Recently India has focussed on getting a spaceship on the moon, which is an incredible achievement, but at the same time investment in AI is falling far behind the level one would expect of an emerging superpower. This may be telling as to where their priorities lie; playing to stay in the game or playing to a domestic audience. There can be no doubt that their future is in their hands and if fully embraced all the world will benefit from their success, even the Chinese.
  5. This week the world has needed the eyes of a hammerhead shark in order to keep track of the meetings that are taking place. First up the BRICS nations, and interested parties, met in Johannesburg for the 15th summit of the group. And, yesterday saw the start of the Fed’s annual three day Economic Policy Symposium at Jackson Hole, Wyoming. The BRICS event has the potential to affect how we map the world in the coming years, whereas Jackson Hole is one that may cause some reaction in the markets but it’s unlikely to dramatically change the course of the global stage. In many respects, it is the actions of central bankers that has led to the BRICS’ formation. The need by the Fed to push dollars on the world, driving cheap credit and indebting those nations that have far less geopolitical clout than themselves, has led to major imbalances. Other Western banks have followed along like lemmings, realising that this was an alliance they could benefit from. What have the BRICS achieved? But the BRICS (and the multiple other countries hoping to sign up) have had enough. As Xi Jinping stated (in a speech delivered by his commerce minister) there is a country that is “obsessed with maintaining hegemony, [and] has gone out of its way to cripple the emerging markets and developing countries”. How much will immediately change as a result of the BRICS meeting, this week? Immediately nothing. But with the invitation to Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates to join, then we could start to see some changes in the coming months and years. Overall, there does seem to be an agreement to move payments away from the dollar, not with a common currency but by making it easier and more efficient to pay in local currencies. But, this was already in motion and had been accelerating since Russia’s faced dollar sanctions. The freezing of Russia’s FX reserves was the catalyst the BRICS needed to start making changes. Do the Purse Holders Even Care? Much of the focus in the BRICS speeches has been in regard to the need for a new world order. It has almost been a call to (geopolitical and financial) arms by the five representatives of each country who have spoken. How nervous will this make the central bankers meeting in Jackson Hole? If past performance is anything to go by, then not much. They rarely notice things before they happen. Central bankers are rapidly looking like the losing team in a relay race, standing waiting for someone to give them the baton to tell them what’s going on, rather than looking behind to see what’s coming up and about to take them over. After all, last year they were trying to cover themselves for not clocking onto inflation early enough. It was almost easy at Jackson Hole last year – they just had to say some strongly worded things to convince markets that they would come down hard on inflation. This year isn’t so easy. It’s now about fine tuning. The theme of the meeting is “Structural Shifts in the Global Economy”. A catch-all statement. Whilst last year was much about blaming the fallout from the Ukraine war and the pandemic for inflation, this year it’s about acknowledging that those inflationary events have in fact led to major structural and behavioural changes across the globe. Not to mention, the clean up after decades of easy money. This year central bankers have just had to do a bit of housekeeping when it comes to inflation. Now it’s the deep clean, it’s the structural changes. It’s when things get shaky. All eyes and worries on the US and China The Fed is faced with a dichotomy of trying to combat inflation but not go too hard and fast so as to make things too expensive for businesses and consumers. The labour market is strong, but loan repayments are falling and savings are being depleted. Spending is out of control and there is the minor issue of being over $32 trillion in debt. Meanwhile, markets are starting to get anxious about China’s economy. Usually, China’s bond yields (and wider economy) have long been correlated with the rest of the world, not anymore. They have been dropping, whilst others climb (some contained, others less so). The economy is fast slowing down, lenders are getting anxious about the ongoing defaults happening across property developers. The high debt burden is weighing heavy on China’s crown. Patrick Karim on gold, inflation and the next break out China’s economic woes have only served to exacerbate those issues already faced by the Federal Reserve. Whilst a slowdown in China may not be as impactful as say the bursting of the US housing market bubble, it will almost certainly negatively impact global demand and supply for goods. And these are just two of the world’s major economies, we haven’t even mentioned the ECB or the basket case that is the Bank of England. Listen to Jay Markets will tomorrow pay close attention to what Fed Chair Jay Powell says. Last year he delivered his most hawkish speech to date. This year, It is expected that he will side step making any short-medium term commitments as to what will happen to rate hikes. Softly, softly is likely to be the approach. Considering the theme of the symposium he would be wise to acknowledge the profound shifts going on across the globe whether changes to green energy, trade and currency arrangements, or the institutional frameworks that are no longer fit for purpose. All of these will impact monetary policy and currency markets one way or another. And this is where gold and silver investors should also consider themselves. Like Jay – don’t worry about the short to medium term. Yes, the gold price right now is a little boring, maybe even disappointing. But enjoy the quiet, maybe even do a little gold shopping. This week wheels have been set in motion towards changes that will set gold and silver right up for the coming months and years.
  6. Next Tuesday the BRICS nations will meet in South Africa for the group’s 15th summit. This could be a game changer for gold. For something that only officially existed eight years after the term ‘BRICs’ was created, the bloc known as “The BRICS” has rapidly gone from an informal term for a group of fledgling economies to one which is carrying increasing weight when it comes to the future of the global system. Next week’s summit, hosted by South Africa, will not only welcome leaders of the BRICS nations (excluding Putin, no explanation needed) but also a further 67 leaders from Africa, Latin America, the Caribbean and Asia. Of these 67 leaders, 23 have formally applied for membership of the bloc, all hoping to follow in the footsteps of South Africa who joined in 2011. Something that has long been rumoured (and was discussed by me, just last month) is the creation of a common BRICS currency. It makes sense: the main impetus of the bloc is to rebalance the world order. Nothing creates imbalances in the global economy quite like US dollar hegemony. In truth, discussion of a gold-backed common currency is nothing new. In the last 20 years alone Asian and African leaders have suggested it. Most insightful was in 2009 when the then head of China’s central bank, Zhou Xiaochuan, wrote: “An international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules … [Its] adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies, as is the case in the current system, is a rare special case in history.” Of course, nothing has happened so far. But are we reaching a point where it might just? In July we perhaps had confirmation of how serious the proposal was when state-sponsored channel RT reported that the “BRICS were planning to introduce [a] new trading currency backed by gold in August.” It is worth noting that there is no mention of a new currency on the agenda for next week’s meeting. How much one can believe this, is anyone’s guess. Is it fool’s gold to plan a common currency? Clearly it will be no mean feat to agree upon and establish a BRICS currency. The five member nations alone all might all wish to establish an alternative to the status quo, but their agendas on the foreign stage do vary significantly. Despite the political clout of the emerging group of current and wannabe members of the BRICS, there are some major issues tearing through their economies. Take the collapse of the rouble, or the recent dumping of Chinese stocks and bonds by foreign investors. Not to mention the personal desires of soon-to-be Argentianian President Milie who wants to demolish the central bank and bring in the US dollar as the national currency. With such differences, how much are the BRICS nations really able to achieve? As BRICS-term ‘creator’ Jim O’Neill told the FT, they have “never achieved anything since they first started meeting”. But we think this is short-sighted and to believe this is to consider the nations as though they are still in the third-world. No one is suggesting that a single currency is introduced and that sovereign currencies are forfeited (as per the Eurozone). No, instead a common trading currency has been proposed. And, this could be major. Currently the bloc is made up of just five countries but should the additional 23 members currently seeking membership manage to join then this will significantly improve the political dimension of the group and prove a much stronger counterbalance to the G7 and G20 countries. The threat is on the sidelines What is most interesting to note is that it seems to be non-BRICS member Saudi Arabia that is leading the dedollarization process. See their comments in January about being open to a non-dollar oil trade. Should they become a member, then we will be up for some very interesting times indeed. As former GoldCore TV guest Jim Rickards explained recently: Why gold? One could ask why is it gold that is being touted? Why not a basket of currencies, or even a basket of resources? Why not a totally new currency, as we saw with the Euro? Because gold is borderless. Is it already accepted as currency – central banks hold it in reserve. It requires no central bank or mechanism by which to manage it. BRICS currency naysayer Jim O’Neill stated: “It’s a good job for the west that China and India never agree on anything, because if they did the dominance of the dollar would be a lot more vulnerable,” But the fact is, they do agree on something – that gold is money. Because it is a sovereign currency, it cannot be manipulated as fiat currencies can. The BRIC nations are unlikely to agree to anything that sees them support another fiat currency – the world learnt the hard way when they watched Bretton Woods play out. Look where that got us. If countries can get past their differences and agree to a gold-back common currency then the symbolism of holding one another’s gold will be huge. The precious metal is the perfect arbitrator. As we saw in Roman and later medieval times, rulers would send their children to live in formerly hostile kingdoms in order to secure peace. Imagine Chinese gold being held outside of China. Does Gold Need There To Be a New Gold Standard? Do we really need a gold standard to set gold on fire? With gold currently trading in a tight range between $1890 and $1900 it might feel pretty tedious and like we need something more than the FOMC minutes to drive the price, but in truth it’s going to be just fine. Gold doesn’t need to officially back a currency in order to shine. Should the BRICS decide to create a common currency, the US (and others) won’t take it lying down and this will see gold do well. Currently, much of the focus is what will happen to gold, should there be a gold-backed currency. Instead, the focus should be on what will happen to gold should the BRICS merely put a plan in place to manage the transition to a new, common currency (gold-backed or otherwise). Just like when you see invasions of countries or military coups taking place, it is not the final regime that will cause the most upset, instead it is the ‘in-between’, it is the transition to the new regime or the new currency that will cause the most upheaval. Of the many scenarios gold likes, it is the ones with uncertainty that it likes best. The whole world is (one way or another) invested in the dollar-led financial system. The five countries that currently make up the BRICS represent 40% of the world’s population and 26% of the global economy. Patrick Karim on gold, inflation and the next break out This is not some pesky group that is proving to be a minor distraction. The group does have the potential to be very disruptive, on a number of fronts. Should a move outside of the US-dollar system become one that is etched in gold, then this will make for a very uncertain time indeed. The mere conversation and posturing around the launch of a common currency will be disruptive enough. It is clear that the first step for the BRICS will be to establish an efficient, widely-adopted and integrated payment system for cross-border transactions and only then will there be a realistic opportunity to introduce a new currency. There is plenty going on elsewhere in the world (shoddy central bank management, slow US banking crisis, fiscal dominance, etc) for gold investors to get excited about. So if no new currency is announced next week then please just keep calm and carry on.
  7. There is so much going on at the moment, both politically and financially that it can be difficult to know what to focus on when it comes to managing your investments. At times like these, it’s good to try to filter-out all of the “noise” and identify the major developing trends that will have the biggest impact on you, your family and your finances. Recently, I did just that and that’s what inspired my talk with Chris Martenson over at Peak Prosperity, earlier this week. Chris and I had a great chat about my top five super trends to look out for over the next 18 months. You can hear them all in the podcast, below. I’d love to know if you agree with my top five, and if not let me know what you would include, instead. For instance, do you think Demographic Decay is something we should be concerned about, when planning and managing our investments? What about De-dollarization? Let us know either by email or just tweet us here.
  8. Since 1975 worldwide obesity has nearly tripled and it is now one of the leading causes of death. Despite this, rarely does someone have ‘obesity’ recorded as the cause of death on their death certificate. Instead, it might read ‘complications from Type 2 Diabetes’ or ‘cardiovascular disease’: conditions that obesity has led to. The rise in obesity is thanks to changing diets and the ready availability of ultra processed foods, as well as changing lifestyles. Despite knowing such diets and lifestyle changes can be deadly, people still consume such foodstuffs and choose not to exercise because the negative impact of doing so is not immediate. In fact, the immediate feedback one gets from living an unhealthy lifestyle is very often positive. Your taste buds signal to your brain that the Snickers bar is really good, or choosing to watch your favourite show rather than go for a run gives you pleasure faster than going for a run does. To see the positive results of a healthy lifestyle is one that takes time. To see the negative results of an unhealthy lifestyle is also one that takes time. It’s not like you eat some deep fried chicken and wham! You’re struck down by a heart attack. No, that takes years of solid, poor choices. It’s only when you find yourself unable to run around with your grandkids or walking around with an oxygen canister do you wish you’d taken better, incremental decisions that would have led to a different outcome. It is only after years of poor decisions that you really feel the true impact. Central Banks and the Expanding Waistline This is basically how it works for central banks. The economy starts to look a bit shaky, or governments make promises they can’t afford or ‘peacekeeping’ missions are declared and the likes of the FOMC decide that rather than save and budget within their means, a big hit of ultra processed credit is what’s needed to help things along. Of course, they do this and everything starts to feel pretty good. Employment rates pick up, consumer spending rallies, startups are turning into unicorns, the S&P 500 is smashing through records and the housing market is booming. Everyone loves this approach to money that costs them very little and as a result they get addicted to it. The problem is the economy no longer knows how to function and stay energised without it. None of the economic policies that seemingly ‘helped’ the economy keep going have added to its overall long-term health. Central banks, recognizing that they have created an inflationary environment on purpose, willing the waistband of the economy to expand so that everyone ‘feels good’, then tries to tell everyone that these health issues are just ‘transitory’. But the truth is the expanding waistband is a fraud. Inflation is theft of wealth from the economy’s future. What’s the Excuse Now? Pretty soon food prices become difficult to manage, people can’t afford to heat their homes, the cost of materials climb and people are struggling to make ends meet. But, in the same way, we justify our weight to ourselves (it’s in my genes, I had a big meal last night), and the central bankers try to justify inflation to us. And they strip out the key components to measure inflation as if they can be easily ignored – we’re talking about food and energy prices here, i.e. two of the biggest costs to the household budget. Only in the last year have the likes of FOMC started to realise there is a big cost to all of this unhealthy economic policy of the last fifteen plus years. They tried to make amends for this by coming down hard on interest rates, and getting the economy to work harder to shift some of this inflation. But actually, how much has changed? ‘Core’ inflation is coming down ever so slightly- but that’s easy to do when food and energy prices aren’t included and costs for services continue to rise faster than anyone would like. As ZeroHedge pointed out, the US unemployment rate is exactly where it was when the FOMC started hiking rates, so is the S&P 500. Very little has improved. All that seems to have been achieved is a near-collapse of the US banking system (more on that shortly) and unsustainable debt levels. The only tool left: words Yesterday Jay Powell announced that the Federal Reserve was raising rates to a 22-year high of a target range of between 5.25 and 5.5 per cent. Markets are assuming that this is the final rate rise this cycle. Bless him, Powell did try in the press conference to wag his finger at the economy and declare that if it didn’t pipe down he’d be back in there to raise rates some more, but no one was really listening. “We have to be ready to follow the data…And given how far we’ve come, we can afford to be a little patient as well as resolute as we let this unfold.” Well, that’s a relief that the FOMC are now looking at the data to guide the way. Interestingly enough Christine Lagarde used near-exact the same phrasing earlier today during the ECB press conference. We’re not convinced that they hope data will drive the way as so far it seems to us that most central bankers now try to influence inflation expectations rather than inflation itself. Jay Powell uses his press conferences and FOMC reports as an inflation-reduction tool more than they seem to use monetary policy tools. As a result, the market is mostly playing along, now pricing this to be the last FOMC hike in the current cycle of hikes with rates being cut as early as 2024. Patrick Karim on gold, inflation and the next break out A slow-down in hikes and ultimately a fall in official rates is good for gold, a non-interest bearing asset, as it reduces the opportunity cost of holding it. But, this isn’t mainstream financial media here. Nothing is ever as simple as “this metric went one way, so this commodity will go that way”. This also isn’t’ the last 15 years where the world has become accustomed to low inflation rates and near-zero interest rates. As investors read the headlines that the Fed is likely to start cutting rates as early as 2024, there will be two expectations – one is that they will gradually cut back down to zero, the other is that inflation really was merely transitory. In other words, the Fed was right all along. Spoiler alert – neither of these things are correct. But what these assumptions do show is how addicted the market has come to low rates and the assumption that central banks really are the puppet master to the economy’s marionette. The truth of the matter is that inflation really isn’t going anywhere. Damage has been wreaked on the health of the economy. The drip, drip, drip of cheap credit and overheating has left us with a situation that sees negative real rates at best and financial turmoil at worst. Nothing, nothing repeat nothing that central banks around the world are doing should be giving anyone any confidence that they are on the right track to reducing our dependence on cheap credit. Therefore no one should have any expectations that real value will be returned to their currencies and savings in the mid to long-term future. Interest rates might be up again, but like an expensive diet plan, the promises are better than the results. Furthermore: high interest payments are clearly not just affecting US Fed’s annual payments. Remember that US banking crisis that arrived with a bang at the beginning of the year? Oddly enough it hasn’t gone away, although you wouldn’t think it looking at the news. Earlier this week US regional banks PacWest and Bank of California agreed to a merger. More deals between the 4,000 banks are expected, as increasing numbers struggle under unsustainable deposit outflows. One has to ask why this wasn’t bigger news. Granted the merger (unlike others this year) didn’t happen under regulator supervision, but it is clearly a sign that the embers of a banking crisis continue to burn.
  9. It is said that the term ‘bank’ comes from the Italian ‘banca’ meaning bench. This is back when we used banks as safe havens for storing multiple real assets, particularly gold. The shelves on which the gold was stored were referred to as ‘the bank’ or ‘banks’. Hence we now ‘bank’ our money and use ‘the bank’ for various financial transactions. Nowadays, that term means a lot more than it did back then. The banking system is something very few people understand the complexities of, or have even had the need to make full use of all the different products and institutions that lie within it. It isn’t what it once was. Despite this, it remains as integral to daily life as it did when we relied on it to keep our hard earned gold safe. For many the ability to hold a bank account is akin to being able to exist in modern society. There was a time when to exist outside of the banking system was something that was associated with your economic status, rather than your beliefs. Financial inclusion has long been at the top of the agenda for many governments around the world. To have a bank account is to be able to partake in daily economic life – pay your bills, travel to work, save, heat your home, feed your children – all made possible by the virtue of having access to a bank account. Those who do not have a bank account are usually referred to as the ‘unbanked’. For a minority, it is a conscious decision not to have a bank account. But for the majority of those who are unbanked it is a circumstance of a difficult existence. 13 million people and 5.9 in the EU and US respectively do not have access to formal financial services. Efforts have been ongoing to reduce this number by putting systems in place that make banking more accessible for a wider selection of minority groups including refugees, prisoners, human trafficking victims, and so on. And rightly so, money does give you freedom. So when you are unable to access it, your life and the options available to you are restricted. Nobody wants that for their fellow citizens. You’re Wrong! You’re Debanked! So what does it say when the banking system on one hand wants to support those who have had to flee their home country because of their political beliefs, and yet on the other hand they are prepared to debank a citizen of their own country because of?…oh yes, their political beliefs? We are of course referring to Nigel Farage. Farage is a divisive character. It’s rare that he garners sympathy from the mainstream media and the wider political spectrum. But, that is exactly what is happening this week. Patrick Karim on gold, inflation and the next break out At the risk of repeating something you have already heard. Mr Farage has had his account with British-banking stalwart Coutts shut down. They originally said it was a funding issue. But a document accessed by Mr. Farage suggests it has a lot more to do with his opinions and political beliefs than it is to do with the amount of cash he held in the bank (of which there was enough to meet the criteria). The move has somewhat backfired for Coutts. In an attempt to effectively render Mr. Farage null and void from anything associated with them, the story is now appearing in over 4.7 million search results on Google. The move has also brought up a whole area of political debate which is long overdue – how much can one’s freedom of speech impact your freedom to exist as a normal citizen? As Farage himself said on the BBC last night, “Is it reasonable that law abiding citizens can be de-banked and become non-people?” The British Prime Minister, Rishi Sunak (definitely no fan of Farage’s) even tweeted: “This is wrong. No one should be barred from using basic services for their political views. Free speech is the cornerstone of our democracy.” The straw that broke… Farage isn’t the only unpopular person to have found himself sat out in the cold from his bank. Others associated with Brexit and unpopular views to do with transgender rights have also been similarly treated. But, worryingly, there is nothing about Coutts’ actions that appear to go against any rules. As FCA Chair Ashley Alder told the Treasury Select Committee: “For banks as well as other commercial enterprises, it’s fundamentally up to them to choose who they do business with…I’m not aware of anything in the FCA rulebook that goes to the point around how banks judge their own attitude to reputational risk, if that’s what it comes down to.” So there you have it. If your bank doesn’t like something you legally stand for, or you legally tweeted, or someone you’re legally associated with, or something you can legally belong to then they can shut down your bank account. This is a very scary move indeed, and something anyone (regardless of beliefs or even social media use) should sit up and pay attention to. As Mr. Farage said himself, It isn’t right that a commercial bank can legally decide to make someone feel like that, to render someone’s existence to a point that they feel like they are a ‘non-person’. But, it seemingly isn’t illegal to do so. Buy gold, buy your own sovereignty Usually, we talk about gold and the role it plays in a balanced portfolio. How it acts as financial insurance in times of inflation or global economic stress and so on. But, cases such as Nigel Farage’s bring us back to the very original reason why people chose (and still choose) to hold gold: because it is theirs, and only theirs. The rise of debanking points to one of the biggest arguments to own gold – once your money is held within the banking system then you have very little control or say over how you can use it. The beauty of gold ownership is that it exists outside of a politically motivated banking system. A system that thinks more about its own image than it does about the security of your money and the ease at which you are allowed to use it.
  10. Last night GoldCore Director Dave Russell had a quick chat with Patrick Karim of northstarbadcharts.com. Patrick walks us through the charts that have him convinced that the gold and silver are “the surest bet” and why “the genie is well and truly out of the bottle”. Much of the focus of the chat was in regard to gold and silver’s relationship to CPI and how and when it will react to changes in the inflation-metric. As Patrick says, gold “will sniff out the destruction of purchasing power”, well we couldn’t agree more. In fact, those who choose to invest in gold have long been aware of its ability to preserve value in a well-balanced portfolio, because of the impact of inflation on other asset classes. Furthermore, look out for chat about ‘coiling’, the numbers Patrick believes will signal a breakout, and why the genie is well and truly out of the bottle. As always, we’d love to know your thoughts on the interview, and please let us know if it’s prompted any question you’d like us to answer!
  11. Watch as GoldCore Director Dave Russell takes us through the Five Steps to Protect Your Portfolio from the Coming Economic Storm, with Physical Gold. (This presentation is a recording from the Virtual Money Conference: Mid-Year Portfolio Review) The world is on the brink of great disorder. Dramatic, negative changes are set to impact portfolios and the majority of investors are not prepared for this. If you’re concerned about this, then you’re right to be. Let Dave Russell walk you through the opportunity to hold physical gold in your portfolio, the ultimate antifragile asset. Walking viewers through the following five steps, Dave ensures that you’ll be confident in your decision to insure your portfolio with gold, by the end of this short presentation. This presentation covers the following five steps: 1. Understand the role of gold in your portfolio 2. Decide what gold products to invest in – how to navigate the options 3. Decide what products not to invest in – how to identify inferior gold bullion options 4. How to choose between different storage options 5. Decide how much to invest in gold
  12. Gold and silver prices have declined in recent weeks as central banks have once again turned more ‘hawkish’ than was expected at the beginning of the year. But, as with anything, these things don’t happen in a vacuum. As we describe below, monetary policy is causing major trouble across a number of sectors, who can tell where the biggest crack will appear first. But, when it does, you’ll be pleased you chose to hold gold and silver during times like these. Tightening policy, at such a rapid pace is causing stress in every sector of the economy, especially the financial, real estate, and household sectors. See our post on April 13 Has the IMF Told the World to Buy Gold? which outlines key fault lines that have been exposed by the rapid interest rate increases. Any one of these fault lines could erupt into a major ‘storm’ and most likely it will be a combination of defaults and restructuring of debt as we discussed in the post on June 1 Global Debt Crisis: Pretend and Extend? Central banks will once again fire up the printing presses to save select banks, companies, and governments, further devaluing their currencies in the process. For investors, it is a gamble as to which will be saved, and which will be let default or restructured to the detriment of current investors. It’s not only gold and silver prices that have faced challenges, but the equity, bond, and housing markets have all seen value declines in recent weeks. The chart below shows gold and silver prices along with two sample equity market indices performance since the beginning of the year. The major exception in the chart below is the S&P 500 index which has risen sharply in recent weeks on the back of the largest seven companies in the index. Mid-year update The start of a recession is one time when both gold and equity prices decline at the same time, but in general gold rallies as central banks scramble to cut rates and restore financial/market stability. The chart below is the long-term look at the gold to S&P 500 ratio. The peaks in the ratio signaled a peak in the gold price and the bottom of 1999-2000 signaled a peak in the S&P 500. The ratio appears to have set a low in December 2021 and set to explode higher as gold rallies during the next fiat currency printing cycle. The gold price ratio to the broader MSCI World Equity Index shows a very similar pattern as the ratio between the gold price and the S&P 500. The gold to oil price doesn’t show a clear long-term relationship – however, over the coming months as economic weakness sets in we can expect gold to rise sharply in terms of oil. The ratio of the gold price to wheat declined sharply in 2021 when wheat prices surged due to the supply shortage, however, the ratio has reverted to the longer-term average. The last chart in this section is the gold price to UK house prices. The relationship between gold and house prices is surprisingly similar to that of gold with the S&P 500 and MSCI. Historically, house prices have been a good store of value, which in the long-run will likely continue. However, in the short-run house prices are likely to decline further as the effects of higher interest rates weigh on homeowners and buyer affordability. Holding physical gold and silver is a proven ‘insurance’ vehicle for when the coming financial/economic storm hits. No counterparty risk or devaluation from the printing of fiat currency! For those new to investing in gold and silver – Our recent podcast The Case For Gold and How to Buy It, featuring GoldCore CEO, Stephen Flood will walk you through the details.
  13. This week we bring you a short half-year update on the gold and silver price, but after that we are once again forced to ask “What Are Central Banks Playing At?”. They have all the potential to do great things like a small child (if you will) but also like a small child they keep shaking a broken toy asking why it’s broken and continuing to do the very things that broke it in the first place. Nothing right now suggests they know what they’re doing or that they are prepared to learn. Luckily for us, we know what happens next…that’s why we invest in gold and silver bullion. Gold and silver started the year off in a strong upswing that seems to have fizzled out as we approach the mid-year point. In US dollar terms gold rose more than 26% and silver rose a substantial 46% from September 2022 lows to the mid-April 2023 high. But since gold has moved somewhat sideways and silver has given back some of the increase. The two metals sit in precarious spots from a technical analysis point as they test support levels and uptrend lines. The metals prices are roller coasting with each economic and monetary policy decision, especially U.S. data and Federal Reserve policy. It is not only metal prices but also bonds and equities that are stuck in this roller coaster ride. The below cartoon from Bob Mankoff seems especially relevant in the current financial environment. The Disconnect There seems to be a disconnect in economic and financial data of late. Central banks have been on an interest rate-raising crusade since March 2022, as they try to squash inflation growth back down to their 2% targets. The Fed, for instance, raised rates over 10 consecutive meetings for a total of 5% higher rates before pausing at its meeting last week (see our post A skip, a pause, a shift? … What’s next for the Fed?) but signaled that more interest rate hikes are ahead. These Fed forecasts hikes are despite the same officials projecting lower economic growth and higher unemployment. Other central banks are also hiking rates despite troubling signs in housing markets, and banks. The Fed and other central banks are in a tug-of-war between inflation and emerging economic problems. Almost all central bankers have admitted that monetary policy works with a lag. How long and to what extent the lag affects the economy is a highly debated topic as it is difficult to completely isolate the effects of monetary policy from other economic factors, and higher rates are not only a one-time hit to an economy but a multi-layer hit. Estimates on the lag time are up to 2 years to take full effect. Be patient, the true damage is coming This means that with the rapid increase in rates only starting 18 months ago that even the first interest rate increases have not fully taken effect let alone the incremental increases along the way. The lag comes into play when, for example, mortgages have to be renewed – which do not all happen in the same year, but over time. As interest rates rise the price of a house that a prospective buyer can afford declines due to increased monthly interest payments to buy that home. Therefore, prices go down. This is the same for bonds – as interest rates rise the value of a bond that has already been issued declines. This was one of the main issues for Silicon Valley Bank (SVB); the U.S. government bonds that the bank held declined in value. This is only a problem for a bank if they have to sell the bond holdings, which SVB did because depositors demanded their money back, forcing SVB to have to sell these bonds at a loss. In short, SVB did not have enough assets to cover the withdrawals. Governments are also paying higher costs to borrow money – interest rates on 10-year government bonds have risen sharply. This means that more of governments’ budgets will go to the cost of borrowing in the future – and with many advanced economies carrying high debt levels, this will add a significant burden to governments. Jobs Data: Change our perspective? In March we laid out several signs of recession for the U.S. economy in our post Reading the Signs: Is the U.S. Economy Headed for Recession? These signs are still apparent and deepening. One contrary indicator that the U.S. Federal Reserve continues to look to is the amount of jobs available in the labour market compared to the labour force – this indicator by traditional measures does show that there are indeed still more jobs available than workers – which keeps the U.S. labour market statistics showing a ‘tight’ labour market. However, new studies are showing that the post-covid labour market is different from pre-covid. One such paper from the National Bureau of Economic Research titled Where Are The Workers? From Great Resignation to Quiet Quitting? shows that workers are working less hours, largely for voluntary reasons, i.e. work life balance. This has employers hiring more workers to get the same amount of work done. An article in the Wall Street Journal, Lots of Hiring, but Not So Much Working, also confirms this trend of Employees working fewer hours. The WSJ also points out that since covid companies resist layoffs even as economic weakness looms. The average number of hours worked a week by private-sector employees declined to 34.3 in May, below the 2019 average and down from a peak of 35 hours in January 2021, according to the Labor Department. A reduction in hours has historically meant layoffs are soon to follow. But not necessarily so this time around. This time, that recession signal might be a false alarm because unusual post pandemic factors are at work. Indeed, even as employers cut hours, they are also adding workers—something they don’t usually do when contraction looms. Payrolls rose by 339,000 in May and by nearly 1.6 million for the year to date. Layoffs were nearly 13% lower in April than in the average month in 2019, according to the Labor Department. The expense and trauma of hiring have left employers unusually eager to avoid shedding staff they will need when business picks up again … Businesses are finally able to hire for long-unfilled positions, allowing overworked staff to return to more normal hours. Finally, workers are opting to work less, possibly because of a shift in work-life priorities. The bottom line is that even the labour market is not as strong as it first appears, by historical measures. The higher interest rates are sure to cause financial and economic crises in the coming year. Central banks are notoriously slow to change direction – but a change is coming, and as central banks lower rates and start up the money printing presses to put out the fires they created, gold and silver will rally again. Did you see our interview with Chris Vermeulen last week? Chris joined GoldCore TV’s Dave Russell and explained why he’s feeling so bullish about gold in the long term, how he expects silver to fare in the coming months and which stock indices can give us a clue about what’s going on at the moment. See the full 15 minute chat here. And, if you’re looking for more gold and silver market commentary then explore the rest of our YouTube channel where you’ll find all of our monthly chats with expert traders and analysts.
  14. Earlier this week Dave Russell of GoldCore TV spoke to thetechnicaltrader.com’s Chris Vermeulen. You might recall that we spoke to him just a few months’ ago. It’s always good welcoming Chris onto the show as we get the chance to hear a long-term perspective on markets and expected moves for gold and silver. And of course, this is what bullion investment is all about. In this latest chat with Dave, Chris explains why he’s feeling so bullish about gold in the long-term, how he expects silver to fare in the coming months and which stock indices can give us a clue about what’s going on at the moment. Also, don’t miss Christ chatting about his new book, and why it’s a must-buy for anyone heading into or just starting their retirement.
  15. Those who have chosen to invest in gold bars or to buy silver coins have often done so because they fear the mismanagement of the monetary system. This week has offered further reassurance that investors are right to want to own gold in a balanced portfolio because yet another fight about the US debt ceiling has concluded. The conclusion is always the same: ‘keep kicking that can’. Whilst Congress ‘celebrates’ reaching a new deal on the country’s national debt, regular citizens and the rest of the world brace for impact. Pretend and Extend Rising interest rates are pushing over-indebted countries to their limits. Politicians and international agencies such as the World Bank and International Monetary Fund (IMF) stand on soapboxes shouting the need for fiscal constraint. But mostly this is mere posturing or promises made to get one or more of; the debt restructuring, additional loans, or outcomes needed in the immediate situation. Fiscal constraint and ‘paying down’ debt largely seems to be a notion of the past – today’s solutions usually come down to debt restructuring monikered ‘pretend and extend’. The deal this week to raise the debt ceiling in the U.S. is an example of this mentality. The deal ‘waives’ the debt ceiling until January 2025. This is a precarious date, as the newly elected Congress and U.S. president take office in January 2025. Congress is sworn in at the beginning of January and the U.S. president on January 25, 2025. The debt ceiling deal doesn’t authorize new spending but allows the U.S. Treasury to issue debt for spending already authorized by Congress. In the U.S. the Democrats want to reduce the deficit (and debt) by increasing revenues through higher taxes on corporations and upper income individuals, while Republicans want cuts on spending to be what reduces debt. The growing divide between Democrats and Republicans has meant that very few from the opposite political party will support the other’s agenda. The debt ceiling deal does have some clawbacks, such as $30 billion in unspent Covid relief that wasn’t used and can’t be used now, but most of the vague provisions for spending cuts are for future years, which by then could easily be reversed or a ‘work around’ found. The U.S. avoided default and can continue to issue debt that the market will buy. And if markets do not buy it the U.S. Treasury can turn to the Federal Reserve to snap up the excess. Even though the U.S. is paying a much higher interest rate this year compared to the last several years, it can continue to pay the interest on that debt by issuing more debt. For other countries, this is not the case, however. The rise in interest rates has pushed other countries to the brink and now a sovereign debt crisis is lurking. Lurking Sovereign Debt Crisis Bloomberg reports this week that government defaults rise to a record in the developing world, and the debate is growing frantic over how to solve these debt crises. Restructuring talks are stalling, with some countries turning to old-school sweeteners and others calling to revamp the Group of 20’s Common Framework. The additional government debt issued during covid coupled with the rapid rise in the U.S. dollar post covid has pushed five developing countries into default with eleven others identified as trading at distressed levels. Five Countries Linger in Default as Risk Mounts in Others Chart The Group of 20 Common Framework was “launched in 2020 as a mechanism to provide a swift and comprehensive overhaul to nations buckling under debt burdens after Covid-19 shock that would reach beyond temporary debt payment moratoriums.” However, to date, no country has been able to utilize the new framework. This means that many poorer countries have been locked out of markets for financing ongoing government budgets. During the time of the lockout, it is indeed very difficult for the country, and recession is generally imminent. Typically, once an agreement is reached the debt is restructured. Creditors usually suffer some losses and in time the market ‘forgets’. After everyone has forgotten the subject country sees borrowing costs come down again and the government borrows until the cycle repeats. Moral Hazard is Rising The elephant in the room is that moral hazard is rising – governments and investors are counting on international institutions and central banks to step in and limit or eliminate the losses on not only government debt. During the Great Financial Crisis and following European Debt Crisis central banks were reactive to developing crises in financial markets and sovereign debt. Post covid central banks are much more proactive in creating programs and providing guarantees. For example, only after the crisis had erupted in Greece and contagion was feared across the Eurozone did the ECB create the Outright Monetary Transactions programme to buy distressed debt. Furthermore, this program was only accessible after the government with the distressed debt negotiated with the European Stability Mechanism a bailout or a line of credit. In contrast, last year, when the ECB started raising rates, the ECB created the Transmission Protection Instrument (TPI) as a precaution in case markets perceived that a country’s debt was in crisis. This immediately lowered the spread between countries’ debt in the Eurozone (for example Italy’s 10-year yield declined by around 75 basis points, to a spread of 185 basis points above Germany’s 10-year yield). In order to access the TPI countries only need to be “in broad compliance” with the bloc’s fiscal rules, but even this is subjective as Italy’s debt to GDP is 144.4%, with a deficit of 8% of GDP in 2022. The previous general bloc’s fiscal rule of debt to GDP of under 60% and a deficit of under 3% of GDP is being re-evaluated and will be more subjective to each country’s fiscal situation. Gareth Soloway – This is the catapult that will send gold to new highs The ECB has not been ‘challenged’ by the market to carry out its promise of support yet, but in our view, as interest rates rise further that day is coming in the not too distant future, as it is for other countries outside the currency bloc. How long the era of ‘pretend and extend’ on sovereign debt will continue has yet to be seen – but eventually eras and cycles shift and usually the pendulum swings far in the other direction before moving back. Gold and silver investors will be rewarded when it does shift.
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