By the Curmudgeon
Inflation fears are mounting. The Fed continues to hold its extraordinarily low interest-rate and extreme-liquidity policies in place buying all types of fixed income assets (including junk bond ETFs). Money supply growth is soaring, U.S. deficit spending is continuing unchecked and the U.S. dollar is weakening. All this comes amidst signs of renewed, slowing U.S. economic activity which wont improve until businesses can open up again.
As a result, investors are buying gold, looking to preserve the purchasing power of their wealth and assets against the ongoing debasement of the U.S. dollar. While practically no one noticed, Gold has been up for nine straight weeks and made a new all-time high closing OVER $2,000 per ounce this past Tuesday. The yellow metal attracted $2.7 billion in net new investment this week, according to BoA Merrill Lynch. (Interestingly, outflows from stocks were $7.4 billion this week - the largest in 11 weeks).
Speculators reduced their bullish positions in COMEX Gold and Silver contracts in the week to Aug. 4, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.46% to 1,262.12 tonnes on Friday. While speculative investors and futures traders will surely take some profits as they did on Friday, the intermediate and long-term trend for Gold is UP.
Victor has a mega research blog post in the works that will detail the history of money and that why now, more than ever, gold is money!
Official overt or covert market interventions, and jawboning by U.S. government officials to depress Gold prices will likely happen in the weeks ahead. However, speculative profit taking with official interventions should prove fleeting given the serious inflation risks and severe underlying dollar-debasement fundamentals.
In context of the continuing economic turmoil and financial-market vulnerabilities, the July FOMC targeted Fed Funds at 0.00% to 0.25%, with the most aggressive ever liquidity and money creation policies continuing in place.
Smart investors realize that the combination of Fed debt monetization and massive deficit spending will FINALLY lead to inflation. This time around, bank loans will increase when the U.S. economy finally opens up and that will increase money velocity which will bring on inflation. In the meantime, Gold is a safe haven in times of political and economic uncertainty (like the continuing trade war with China).
During a video interview with Bloomberg on Friday, Mohamed A. El-Erian, former Chief Economic Advisor at PIMCO. said that the narrative that has been driving big tech stocks higher is now true of Gold.
"What's interesting about gold is that it's starting to become everything to everybody. People like it because it's defensive. People like it because it's a reflationary trade. People like it because its inflation protection," said El-Erian. "So the narrative of Gold is similar to the narrative with big tech: it gives you everything, and thats why were seeing structural allocations into Gold" he added.
Stay tuned for Victors blockbuster post later this week...
Quick Comment from the SuperBear:
Gold has rallied but silver has also rocketed ahead getting close to $30 an ounce before finally pulling back late last week. Silver traded under $12 an ounce as recently as March. Still far from its all time high but demand for the relatively easy to obtain physical metal is strong. As outlined by the Curmudgeon and Victor the flood gates of liquidity are fully open now and the Fed has completely surrendered to any normalized rate policy. Dare I say we may have seen the last rate hike for years
Now the White House and the House are fighting over how many more trillions to spend just this year. Given the strong chance of the Democrats once again controlling Congress and the White House next year the spending might somehow go higher as the new goal will be to bailout fiscally irresponsible states like my own state of California, among others.
Stay safe, maintain a positive attitude, and be healthy. Good luck and till next time
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Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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