‘Geological’ inflation is here; how does this affect gold and silver price?

Guest(s): Randy Smallwood

We're living through a period of "geological inflation" which describes an environment of ever increasing demand for metals, but dwindling reserves, said Randy Smallwood, CEO of Wheaton Precious Metals.

"It is getting tougher and tougher to find assets, to find opportunities, to grow, to find exploration," Smallwood said.

 

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David – http://markethive.com/david-ogden

Is the worst behind us? Here’s what’s next for gold price

After losing more than $200 since the start of the year, gold may have finally found its bottom – Monday's 10-month low.

This is definitely the theme from this week's top 3 stories, with key figures in the gold space calling for higher prices to come.

Goehring & Rozencwajg Associates still calling for $15,000 dollar gold before this bull cycle is over, expecting a full turnaround in the second half of the year. Frustrated gold investors need to look at the gold-oil ratio when determining price reversals. This means that gold will stop falling when it becomes less expensive relative to oil. What needs to happen is for the ratio to move back to around 15 from the current levels in the upper 20s.

DoubleLine CEO Jeffrey Gundlach is no longer just neutral on gold, saying that the precious metal is done falling after hitting a 10-month low on Monday. Gold's fair value is at $1,761 an ounce, he said, which gives the precious metal some room to the upside.

Barrick Gold CEO Mark Bristow said that another spike in gold “is coming.” This headline comes from Bristow’s keynote presentation from the world’s largest mining conference PDAC, which was held virtually this year. Bristow said there is an "over-exuberance" in the financial markets right now with investors desperately piling into assets that don't have any real value. This kind of behavior led to a major crash in the past and it will happen again, he said, adding that there is another spike in the gold price coming.

 

By Anna Golubova

For Kitco News

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David – http://markethive.com/david-ogden

Can gold price break free of Treasury markets? Analysts zero in on this trigger

Has gold found its bottom at this week's 10-month lows? Analysts are waiting to see if the precious metal can hold the $1,700 an ounce level and break free from the Treasury markets' chains.

After plummeting to the low of $1,675 on Monday, April Comex gold futures recovered above $1,730.

On Friday, gold was down on the day but was able to hold the $1,700 an ounce level in the face of higher Treasury yields. The bond market selloff continued after U.S. President Joe Biden signed his $1.9 trillion stimulus bill into law on Thursday. At the time of writing, April Comex gold futures were trading at $1,717.90, down 0.27% on the day.

"The 10-year yields are rising, and the curve is steepening up more. Even the short end of the curve has steepened up. This could continue as we see good economic numbers and talk about inflation. More risk appetite leads to yields shooting up, and it is not a good story for gold," TD Securities head of global strategy Bart Melek told Kitco News. "Precious metals are held hostage by Treasury markets."

 

All about yields

The U.S. 10-year Treasury yields surged above 1.6% overnight. "Yields are still in play. We thought $1,675 could be the low in gold. But it all depends on yields and if they continue to rise," said RJO Futures Senior commodities broker Daniel Pavilonis.

The $1.9 trillion stimulus package is also inflationary. "The market is expecting consumers to start going out and buying goods with that money," noted Phoenix Futures and Options LLC president Kevin Grady.

Once everyone will get vaccinated in the U.S., the yield curve will respond, and gold could have a hard time, Melek noted.

On top of that, markets are starting to price in more stimulus measures, including infrastructure spending.

"If money printing, higher yields, and foreign buyers selling our debt is the new M.O., there is more reason to buy emerging markets right now. The stimulus is ultimately a signal to the rest of the world that we are not in good shape, and we wave to pump out more money to bail out governments," Pavilonis said.

 

Eyes on the Fed next week

The current correlation between yields and gold is that as yields go up, gold comes down. This can change in the future, and once it does, gold can surge higher, Pavilonis pointed out.

"Eventually, that correlation will break. The Federal Reserve admitting that we are seeing inflation and we might have to raise rates sooner than thought would break that correlation. Or even just admitting that rising yields are a concern. That would be bullish for gold," he said.

The Fed has been largely ignoring the issue so far, which is why all eyes will be on the Fed Chair Jerome Powell next week as he holds his press conference after the central bank's interest rate announcement on Wednesday.

Even the European Central Bank (ECB) came out on Thursday saying that it is concerned about inflation and the printing of money, noted Pavilonis. The ECB said it would use its Pandemic Emergency Purchase Programme (PEPP) to halt any unwarranted rise in debt financing costs.

The ECB President Christine Lagarde "nonchalantly said that higher yields could translate into premature tightening for financing in all sectors in the economy," described Pavilonis. She also noted that the ECB wants to preserve favorable finance conditions with inflation looming down the road.

"If Fed came out and said something similar, that would be bullish for gold … The fact that yields are rising maybe shows the Fed is losing control," Pavilonis stated.

Melek said it is unlikely for Powell to make any significant new comments on the yield curve. "Powell will assure us that it is too early to talk about increasing interest rates. He was pretty ambiguous last time around when the yields moved up sharply, and the risk appetite wasn't hurt," he said.

Powell might attempt "to talk down yields," added Grady.

Also, the markets will get a look at the Fed's updated quarterly projections. And the ING economists are expecting an upward revision to the 2021 GDP.

"There will also be a lot of interest in the Fed Funds rate Dot Plots. Does the Fed 2023 Dot Plot median shift to a 25bp hike? Probably not, but the dollar would probably rally if it did. Yet a largely unchanged FOMC statement and a Jay Powell press conference repeating that the Fed has a long way to go before reducing stimulus should prevent the dollar running too far ahead," the economists said.

 

Price levels

It is critical to see how gold behaves next week around the $1,700 an ounce level, according to the analysts. A move towards $1,760 would signal a possible rally to come, while a drop below $1,670 could open the door to $1,600 an ounce, they said.

"Gold may be bouncing around here and consolidating for a move higher; need to get above $1,760 to give confirmation," said Pavilonis. "The $1,670 level is support. If that shakes out, we could be looking at $1,600."

Gold will need to hold $1,700, said LaSalle Futures Group senior market strategist Charlie Nedoss. "I want to see what it does at $1,700," he said.

Melek added that short-covering is very likely in the short-term. But if the U.S. dollar and the yields keep rising, gold could re-test $1,660 an ounce next week.

Grady pointed out that it is dangerous to be short-gold right now, while, at the same time, it is not beneficial to be long-gold either. "To be short gold in the market that has so much money printing and stimulus is dangerous. But every time gold goes up, it is being sold. Traders want to look or trend and ride that trend," he said. "That is why I am neutral."

 

Other data to watch

There will also be a slate of fresh economic data to monitor next week. The data releases will kick off with N.Y. Empire State manufacturing index on Monday and the U.S. retail sales and industrial production on Tuesday.

 

The U.S. housing starts and building permits are due out on Wednesday, followed by the Philadelphia Fed manufacturing index and jobless claims on Thursday.

 

By Anna Golubova

For Kitco News

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David – http://markethive.com/david-ogden

Gold and silver had mixed results in trading yesterday

After two days of substantial gains, we see both gold and silver consolidating at current pricing. This factor bodes well for the assumption that both precious metals, after sustaining an approximately 61.8% Fibonacci retracement from the highs achieved in August of last year, as potentially an area to find support and form a bottom.

Even with the muted price change from yesterday, if the recent gains were a so-called "one and done" scenario, we most likely would have seen a retracement from the gains achieved on Tuesday and Wednesday.

Gold pricing was definitely influenced by a weaker U.S. dollar and fractionally lower yields on U.S. bonds. While this also benefited silver pricing, it was the industrial component that added more fuel to the fire, with U.S. equities once again in rally mode.

However, I believe the recent round of government spending both in the United States and abroad will devalue the currencies of the eurozone and the United States. On Wednesday, Congress approved President Biden's $1.9 trillion fiscal stimulus aid package. In a vote of 220 to 211 the House passed the president's "American Rescue Act." The Senate passed the same resolution in a vote of 50 to 49, with a vote that followed party lines making it a genuinely partisan bill.

According to the New York Times, this financial aid package is "one of the largest injections of federal aid since the Great Depression. It would provide another round of direct payments for Americans, an extension of federal jobless benefits and billions of dollars to distribute coronavirus vaccines and provide relief for schools, states, tribal governments and small businesses struggling during the pandemic."

President Biden has already signed the bill into law this afternoon. Originally it was announced that he would sign the aid package on Friday. However, the president, along with his advisers acutely aware that those who most need this injection of fiscal stimulus (low and middle-income Americans) are living week to week, meaning that the next round of fiscal stimulus checks cannot come soon enough. In the case of those unemployed, those benefits are set to run out this weekend. In other words, time is of the essence, and the White House is aware of this.

Just before signing the bill in the oval office, the president said, "This historic legislation is about rebuilding the backbone of this country and giving people in this nation, working people, middle-class folks, people who built the country, a fighting chance. That's what the essence of it is."

The president will address the nation tonight in which he will educate the public as to the benefits which will be forthcoming through the relief package. Addressing the nation, he said this conference would "talk about what we been through as a nation this past year. But more importantly, I'm going to talk about what comes next. I'm going to launch the next phase of the Covid response and explain what we will do as a government and what we will ask of the American people."

While there may be a partisan divide as to how this $1.9 trillion has been allocated, there is a bipartisan acknowledgment that there are still nearly 9 million individuals that are unemployed and millions of Americans that cannot pay their rent or financially function in any solvent manner.

That being said, with the acknowledgment that aid is greatly needed, the undeniable fact is that

it increases our national that by almost $2 trillion. When this capital expenditure is added to the $4 trillion spent last year, one has to recognize that there will be some level of economic fallout. Never since the Great Depression

have we allocated such a large amount of capital to reignite the economy and aid those Americans in need. While it most certainly will pressure the U.S. dollar lower, the real question becomes how many years will it take to overcome the increased national debt.

It is for that reason, on a fundamental basis, that many investors and major institutional players will take a fresh look at the safe-haven asset class. The only caveat to that would be rising yields that would compete with those investment dollars. Also, besides these safe-havens, Bitcoin is also in direct competition with both not as a risk-off but rather as a way to overcome the inflationary pressures all of this spending will certainly provide.
 

By Gary Wagner

Contributing to kitco.com

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Gold and silver are once again higher leading into the EU open

Gold and silver are heading into the EU session both trading higher. The yellow metal is 0.61% in the black trading at around $1736/oz while silver is 0.58% higher at $26.34/oz.

Overnight the risk sentiment in equities markets was pretty good as the Nikkei 225 (0.60%) and Shanghai Composite (2.36%) both traded higher but the ASX closed flat. This move came off the back of a fresh record high for the Dow last night.

The best-performing currency overnight was AUD as AUD/USD traded 0.46% higher and AUD/JPY moved 0.72% in the black. The Japanese yen has been underperforming against most of its major counterparts for a while now. In the rest of the commodities complex, copper trades 2.05% higher along with WTI which trades just above flat.

US official says US President Biden is still seeking to make the child tax credit permanent. This comes after the house of representatives passed Bidens $1.9trl stimulus package yesterday. He is now set to sign the deal on Friday.

Sticking with the stimulus bill, US Treasury Secretary Yellen said today was a pivotal day for the US economy (after the house approved the deal).

In terms of what comes next for the President, there are reports suggesting there will be a "China-related" spending bill which could include a focus on semi-conductor, 5G etc. Also according to US media reports Biden is looking to seek US bank buy is for infrastructure spending projects which could be valued at around $2.5trl.

On the geopolitical front, US Sec State Blinken says will take action against 'egregious' violations of human rights in Hong Kong.

Top US and Chinese officials are set to meet for a two-day summit in Alaska next week. Topics to discuss include climate change, COVID-19 and both nations stance on Hong Kong.

On the coronavirus front, there have been Asia travel bubble talks and it seems that Taiwan, Singapore, Japan, South Korea, and Vietnam are looking to have pathways between them.

The Governor of Taiwan's central bank says the US may list Taiwan as a currency manipulator. This is interesting as SNB's Jordan spoke about the $100bln used to defend the Swiss Franc.

In Australia, there are warnings that there could be around 300,000 lost jobs once JobKeeper (wage subsidy) support ends. In the UK there could be the same problem once Furlough stops.

In Europe, the ECB has drafted a report that says they are not expecting a massive rise in inflation and they also assume savings will not fuel a spending boom (sources).

Looking ahead to the rest of the session highlights include ECB policy announcement US ICJ, OPEC monthly report and comments from BoC Gov Council Member Schembri and ECB's Lagarde.
 

By Rajan Dhall

For Kitco News

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David – http://markethive.com/david-ogden

Gold is flat leading into the EU session

Gold and silver are mixed leading into the EU session this morning. Gold trades $15 above the $1700/oz level while silver is at $25.79/oz.

After inheriting a positive risk sentiment overnight the Aisa-Pac bourses are mixed. The ASX (-0.84%) and Shanghai Composite (-0.05%) trade in the red while the Nikkei 225 closed 0.03% higher.

In FX markets, the greenback is the strongest currency overnight. The dollar index trades 0.19% higher at 92.13, while USD/JPY moved 0.30% higher. The Japanese Yen was the main laggard in the main G6 currencies.

In the rest of the commodities markets, oil (–0.38%), copper (-0.09%) and natural gas (-0.59%) all trade lower in a tough session for the sector.

On the economic data front, Chinese inflation data for February hit -0.2% y/y vs the expected reading of -0.3%/, PPI printed higher at +1.7% y/y vs expectations of +1.5%.

Sticking with data, Australia's Westpac consumer confidence index for March hit +2.6% m/m (prior +1.9%), A decent rise.

On the central banking front, RBA Gov Lowe says would be comfortable with a lower AUD, but cannot say its overvalued. Lowe said a tight labour market is key to driving higher wage growth. The RBA are still considering whether to move from April 2024 bond to November 2024.

We also heard from SNB's Jordan, he said its too early to speak about any changes to interest rates in the long term, He added that the SNB has used around CHF 100bln intervening in the currency markets.

New US Treasury Secretary Janet Yellen has promised to get $350bn in aid to state, local governments as quickly as possible.

The $1.9trl stimulus bill passed a procedural hurdle and now this paves the way for a debate on Wednesday morning (US hours) that could last up to 2 hours, ending in a final vote.

Private oil survey data showed a large build in headline crude oil inventory. The weekly figure came in at 12.792M vs the expected reading of -0.833M, a massive miss.

Looking ahead to the rest of the session highlights include US CPI, BoC rate decision, weekly DoE's and comments from RBA's Lowe.
 

By Rajan Dhall

For Kitco News
 

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David – http://markethive.com/david-ogden

Is gold price gearing up for a Christmas rally?

As this tumultuous year winds down, the gold price seems to be positioning itself for a year-end rally as markets bet on more stimulus next week, analysts told Kitco News.

Gold price attempted to push through the key psychological resistance level of $1,900 an ounce this week but ended up settling just below that on Friday. February Comex gold futures were last trading at $1,888.70, up 2.5% on the week.

Gold saw a nearly $70 gain this week as Federal Reserve Chair Jerome Powell stressed that the central bank would continue its asset purchases until "the job is well and truly done."

"We do have the flexibility to provide more accommodation," Powell added. "The issue is getting through the next four-six months. Clearly, there is going to be a need for help there."

Gold's target of $1,925 by Christmas is still within reach, said Kitco Metals global trading director Peter Hug.

"Powell made it very clear that they will keep their foot to the gas, and he didn't anticipate any type of tightening until 2023. That means at least two years of the Fed indicating easy monetary policy and flexible inflation targeting," Hug said on Friday.

Hug remains very constructive on gold until the global economy begins to normalize in the third quarter of next year.

"From the fiscal perspective and the central bank perspective, they will continue to be accommodative, which will balloon the deficits and hurt the U.S. dollar. In that context, you have to be constructive on precious metals," Hug said.

There are two key underlying triggers that are supportive of higher prices next week, said TD Securities commodity strategist Daniel Ghali.

"We are of the opinion that gold is trading cheap relative to real rates, and the precious metal will be playing catch-up. At the same time, the immediate impulse for higher prices is rather associated with a CTA buying program, in response to strengthening upside momentum," Ghali said. "The Fed's decision to tie QE to economic outcomes still supports the notion of a growth and inflation overshoot, which should provide macro tailwinds for gold in the longer-term."
 

U.S. stimulus and Brexit

The two key items on the agenda next week are U.S. fiscal stimulus and Brexit.

"Investors remain focused on whether politicians in Europe can drive a Brexit deal over the line and also whether Congress can avoid a government shutdown," said ING FX strategists. "We are biased towards progress on both and a continuation of this year's soft dollar environment."

Congress has just hours left to avoid a government shutdown and finalize the $900 billion coronavirus relief package. The federal funding lapses at 12:01 a.m. ET on Saturday."Over this weekend, we will know if the stimulus package will happen. $900 billion is already expected by the market. Any disappointment could be negative," Hug said.

"The other item on the agenda is Brexit negotiations. Right now, there is a better than a 50-50 shot that the UK will leave EU without a trade deal, and that will be positive for the metals next week," he added.

A no-deal Brexit would create fear and uncertainty and boost gold, Hug explained. "There could be a financial dislocation between London and Europe. It creates fear, and Europeans would then turn to buy gold."
 

Price levels

Hug is expecting to see resistance at $1,900 next week as gold might attempt to get to $1,925.

Ghali is carefully eyeing the $1,920 level next week, which he describes as "the essential baseline level" that needs to be breached before the consolidation period is over. On the downside, he was optimistic that the $1,850 level could hold.

"The algos are looking for prices to remain above the $1,880/oz range for the buying flow to be sustained. Gold bugs are also looking for a break north of the $1920/oz range, which would technically represent the end of the consolidation period with prices breaking away from the bull flag. Given gold's relative cheapness and the ongoing algorithmic buying flow, we could imminently see a breakout," he said.

LaSalle Futures Group senior market strategist Charlie Nedoss highlighted $1,914 as a strong resistance level next week. Nedoss also noted that if gold falls below $1,877 next week, it will go on the defensive.
 

Data to watch

On the data front, markets will be keeping a close eye on the final U.S. GDP Q3 numbers on Tuesday. Also on the agenda are existing home sales on Tuesday as well as house price index and new home sales on Wednesday.

Analysts will also be watching Wednesday's PCE price index and personal spending, as well as Thursday's jobless claims and durable good orders.

"The upcoming data flow includes personal spending, which is likely to be soft given weak retail sales numbers, but the manufacturing data suggests durable goods will be relatively firm," ING chief international economist James Knightley said.
 

By Anna Golubova

For Kitco News
 

Kinesis Money

David – http://markethive.com/david-ogden

Gold and silver are now in a perfect storm scenario

Sadly, the events that began in March when the Covid-19 epidemic officially became a global pandemic has led to the current state of the economy. Actions by the Federal Reserve and the U.S. Treasury have resulted in a perfect storm of events that have taken gold to its highest price ever in August 2020.

The fundamental events that have led to the series of massive rallies in gold and silver are still very much with us. The announcement that multiple pharmaceutical companies have completed their third stage trials and are now being granted emergency use by the FDA could not have come soon enough.

However, the timeline for the vaccines to become available to the general public is still many months away. This means that the economic contraction which has affected millions of Americans leaving them unemployed, and the millions of Americans that we're able to stay in their homes due to the moratorium on eviction are still in an extremely fragile and tenuous situation.

It is for these reasons that the current proposal of a financial aid package costing approximately $748 billion is almost certain to pass both the House and Senate and be enacted before the end of the year. Once the proposal has been voted upon and passed it will address extending the unemployment benefits to those who would face additional hardship as their benefits were set to expire on December 26. It will also extend the eviction moratorium set to expire on December 31.

For the first time since the pandemic began global citizens have hope as they can see a conclusion to the most devastating virus, the world has known since the Spanish flu. However, this light at the end of the tunnel although visible is still 3 to 6 months away.

Globally to date over 74 million individuals have contracted the virus, and the world has lost over 1.6 million souls. The most recent data indicates that the last few weeks have produced the largest daily death toll since the pandemic began. On Wednesday of last week, the United States reached the highest daily death toll of this crisis when over 3,000 people had died in a single day with their deaths directly attributable to the virus. ICU beds in hospitals across the country are filled to the highest level since the pandemic began. According to Dr. Fauci, the central federal architect of the virus response has warned us that daily infections will continue to rise until the vaccine is available to the general public.

This means that the fundamentals which have been at the root of recent gains throughout the year in gold remain fully intact at least until the beginning of the second quarter of 2021. More alarming is the fact that once the vaccine is available and enough individuals have created a herd immunity, the economic fallout that will occur will continue to grow, and the financial repercussions that this will cause will continue.

This is why I believe that we currently have a perfect storm scenario in which gold pricing will continue to rise, and over 2021 will trade to a new record high, as the U.S. dollar’s value will continue to diminish.

 

By Gary Wagner

Contributing to kitco.com

Kinesis Money

David – http://markethive.com/david-ogden

Gold pushes higher leading into the EU session

Gold has moved half a percent higher leading into the EU session and taken out the previous wave high at $1875.28. Silver is also trading well and has moved past $25.50 to trade 1.60% higher overnight. The general risk sentiment overnight in the Asia Pac area is positive with the Nikkei 225 (0.18%), ASX (1.16%) and Shanghai Composite (1.13%) all moving in the right direction. The dollar index has taken another dive falling 0.57%.

The FOMC last night didn't throw up too many surprises. There was no change to the composition of stimulus and rates remained unchanged as expected. The Fed said it will maintain its huge bond-buying program until "substantial" progress is seen in employment and inflation. One notable point was the fact that the Fed refrained from extending the weighted average maturity of its purchases.

Germany has given its support to Chinese tech firm Huawei on the 5G network. High profile countries like the UK and Australia have notably rejected to use the Chinese telecommunications firm for their 5G rollout.

Stocking with Australia, their latest jobs numbers impressed overnight. Australian employment change for November came in at 90.0K vs the expected reading of 50.0K. The Australian dollar is one of the outperformers this morning and trades 0.63% higher against the dollar. GDP in NZ also beat expectations to print at 14.0% Q/Q for Q3 vs the consensus of 13.5%.

In the crypto space, Bitcoin hit an all-time high and the euphoria kicked in. Scott Minerd the chief investment officer for $5.3bn Guggenheim Macro Opportunities Fund even stated his team feel that BTC us undervalued and could hit $400K.

Looking ahead to the rest of the session highlights include the SNB rate decision, BoE rate decision. EU CPI, US building permits, Philly Fed data and comments from ECB's de Guindos, Schnabel, BoE's Broadbent, Bailey and Fed's Broadbent.

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Gold and  silver lose ground heading into the EU session despite some USD weakness

Gold and silver trade marginally lower heading into the EU session on Wednesday despite some weakness in the USD overnight. Risk sentiment was generally positive as the ASX (0.72%) and Nikkei (0.26%) closed higher and the Shanghai Composite was the laggard closing just under flat. Platinum (0.50%), palladium (0.54%) and copper (0.20%) are all trading in the black this morning as it seems that only gold and silver could not take advantage overnight.

The main story from late in the US session was more optimism about a US fiscal coronavirus deal. Senator Mitch McConnell said significant progress on COVID-19 relief is being made, while House Minority Leader Kevin McCarthy says COVID-19 relief negotiations moving in the right direction.

There was also some data overnight, Japanese preliminary manufacturing PMI for December printed at 49.7 vs the analyst consensus of 48.9. Their services PMI was a touch lower than last months reading of 47.8 at 47.2. The Australian readings were positive as manufacturing PMI came in at 56.0 vs expected 55.8 and services PMI hit 57.4 vs the expected reading of 55.1.

On the Brexit front, there was some optimism from the Irish PM. He said he was hopeful that a deal could be reached by the weekend. He also stated "I would like hopefully by the weekend that we would have clarity around this and certainly it's important that we do get some clarity so that we can then get any deal that might come over the line ratified"

Looking ahead to the rest of the session highlights include PMI's from the major nations, UK CPI, EU wages, EU trade balance, Canadian wholesale sales, Canadian security purchases data, NZ GDP and the Fed rate decision. We are also set to get comments from Fed Chair Powell, ECB's Schnabel, ECB's De Guindos, ECB's Enria and German Buba Vice President Buch.
 

By Rajan Dhall

For Kitco News

 

Kinesis Money

 

David – http://markethive.com/david-ogden