Sive Morten
Special Consultant to the FPA
- Messages
- 18,816
Fundamentals
The world is falling apart guys. I'm speaking not about some catastrophe but directly about falling on parts. Recent events very evidently show this - Fico incident, Putin visit to China, Iran-India agreement. All these moments point on starting fragmentation. This once again confirms our suggestion that we're just in the beginning of the long path, and, generally speaking, the raising of the gold price is not started yet. Now we could see that gold market doesn't need any "gold specific" news, as we previously were watching for COT reports, sentiment, global consumption and some other specific stuff.
Now we see that it is driven by factors that can't be directly related to gold market. But, because they are global, they are become particular drivers for performance of the precious metal. This is because investors see what's going on. The majority still think, that everything bad will pass sideways, as it was many times in the past. But they are mistake. Those who are more careful and intelligent start taking some steps, until they could be taken. As we've said - go out from all the US assets and buy gold. We suggest that very soon all financial assets will be strongly devalued. Yes, we trade gold day by day, but our major task is accumulation and wealth preservation, finding good points where to do this with the best result.
Market overview
Gold rose to the highest in more than three weeks after latest data showed ebbing inflation and weak retail sales, reinforcing expectations that the Federal Reserve will start cutting interest rates this year.
Gold prices rebounded, helped by a pullback in the dollar and Treasury yields after data showed U.S. producer prices rose more than expected in April, suggesting inflation remained high. U.S. producer prices increased more than expected in April amid strong gains in the costs of services and goods, leading traders to pare back bets of a first rate cut in September. Meanwhile, Fed Chair Jerome Powell said he expects U.S. inflation to continue declining through 2024 as it did last year and noted it was unlikely the Fed would have to raise interest rates again.
On Wednesday, data showed U.S. consumer prices rose less than expected in April, boosting chances of the Federal Reserve cutting interest rates. U.S. CPI rose 0.3% last month after advancing 0.4% in March and February, suggesting that inflation resumed its downward trend at the start of the second quarter in a boost to financial market expectations for a September interest rate cut. Market participants are pricing in a roughly 68% chance that the Fed will cut rates in September, according to the CME FedWatch Tool.
Fed Bank of New York President John Williams said that positive news around cooling inflation is not enough to call for the U.S. central bank to cut interest rates sometime soon. Lower interest rates reduce the opportunity cost of holding non-yielding gold.
Gold prices, aided by China's stimulus measures, looked poised to clock their second consecutive weekly gain on Friday on renewed hopes for U.S. interest rate cuts, with silver breaking the $30 barrier to hit an 11-year high. The market was lifted after China, a major consumer of industrial metals as well as gold, announced "historic" steps to stabilise the crisis-hit property sector.
While the data provided some relief for policymakers looking to start cutting interest rates this year, they also pointed to potential economic weakness and sticky inflation, which would benefit gold as it’s a hedge against financial stress and price pressures.
Investors remain net sellers of gold exchange-traded funds so far this year, with total holdings down 5.9%, according to data compiled by Bloomberg.
Spot silver jumped 4.8% to $31.02 per ounce after breaking above a major resistance level of $30. The last time silver hit the $30 price level was in early 2021, but sustaining it for an extended period has eluded silver for more than a decade.
Carlyle Group’s Jeff Currie brought enthusiasm for commodities and a prop to his Surveillance appearance today. He brandished the copper bracelet on his right wrist to punctuate his point about surging prices for an industrial metal. Three factors drive the voracious appetite for copper: green energy, AI and military applications. As recently as 2019, before the pandemic, the latter two weren’t factors at all, Currie said, and that demand helps underpin his $15,000-per-ton price target.
Oil remains a solid asset, even with a recent pullback in Brent and WTI crudes. Still, “it’s not like the underlying copper story” because the Biden administration has election-year levers to pull, like tapping the Strategic Petroleum Reserve, to keep down prices temporarily, Currie said.
As with copper, gold is still poised to keep rallying, he added. And also like copper, the reason is a new constellation of drivers. “Dollar recycling” used to accompany price increases for commodities such as oil, when producers such as the Saudis would take their dollar proceeds and plow them back into US Treasuries.
THIS IS NOT A JOKE ANY MORE - GOLD RUSH IS SPREADING TO OTHER COMMODITIES
A key gauge for raw materials prices rose to the highest level in more than a year, throwing a wrench in central banks’ efforts to tamp down inflation. The Bloomberg Commodity Spot Index — which tracks 24 energy, metal and agricultural contracts — inched up Wednesday to the highest reading since April 2023. The overall consumer price index in the US rose 0.3% from the prior month and 3.4% from a year ago. Shelter and gasoline accounted for over 70% of the increase, the Bureau of Labor Statistics said in the report.
The mismatch between rapidly-growing demand and sluggish supply has already helped push copper prices to more than $10,000 a ton in London trading this week. But according to commodities veteran Jeff Currie, the metal still has more room to run.
Second is, silver has soared by more than a quarter this year, outpacing gold and making it one of the year’s best-performing major commodities. Yet in relative terms, silver is still cheap. It currently takes about 80 ounces of silver to buy 1 ounce of gold, compared with the 20-year average of 68. Recall how just 2-3 weeks ago we talked about the same ratio and the chart.
With gold hitting a record on central-bank buying, retail interest in China, and a resurgence in bets lower US interest rates are on the way, silver’s gone along for the ride. Although there’s been scant interest from investors in silver-backed exchange-traded funds, physical sales have picked up, including at Singapore-based dealer Silver Bullion Pte.
The metal is a key ingredient in solar panels, and with robust growth in that industry, usage of the metal is expected to reach a record this year, according to the Silver Institute. Against that backdrop, the market is headed for a fourth year in deficit, with this year’s shortage seen as the second biggest on record.
Citigroup Inc. reckons that if the Federal Reserve proceeds with interest-rate cuts and economic growth stays strong in the second half, the ratio could move to around 70, although it cautioned that a slowdown would push it the other way, according to a note.
Nickel prices spiked as much as 7.9% on the LME on Friday after violent protests broke out in New Caledonia, the world’s third-biggest supplier.
In general, guys - just briefly take a look at Commodities table and its performance YoY basis. It will be clear that it is not the story of just copper, silver, gold etc. This is actions across the board - basic, precious metals, rare metals, food, hydrocarbons etc. Yes there are exceptions, not all commodities are raising, but they are in minority. Besides, some of them are derivatives from the core, such as some fractions of natural gas, or steal is produced from Iron Ore that is also rising etc. How all these stuff relate to gold? We will explain lower...
What is going on?
The question that many people start to ask. To explain we should also put in chain few other interesting events. Let's step back for a moment out from commodities topic and take a look at China. There are two important events have happened recently. First is, China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist. Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium (!!!), often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.
Rumors tell that the peak of sell-off was a reason of sudden jump of the 10-year yields to 5%+ level and forced the US Treasury to made some efforts to hold market stable. With China selling dollar assets, its holdings of gold have risen in the nation’s official reserves. The share of the precious metal in the reserves climbed to 4.9% in April, the highest according to central bank data going back to 2015.
Second is - China starts Real Estate QE with unprecedented volumes. Initially programme suggests inflow for ~ $150 Bln. Let me remind you that China, with approx. equal to the US economy size has two times larger Money Supply already. Why it doesn't trigger inflation - this is different question. In two words speaking, the reason is in the way how China sterilizes the extra cash. They do it differently.
Yesterday we've talked about the US stimulus and the Fed and US Treasury activity on this way. Probably it is no needed to explain that all this huge inflows create healthy background for raising of the real assets, such as commodities. Although you do not see inflation in official data, but it doesn't mean that it doesn't exist, right? So let's have a look at some details...
Considering the fact that the second wave of inflation in the dollar is obviously accelerating - although now it’s not hydrocarbons that are leading the charge, but metals and food, any alternative to cash/non-cash money will be good.
And yes, in this case, the question for China and other large treasury holders is not to make money, but to save at least something. You can still jump out of there with a million, but it is impossible when you have $500 billions. Elections are coming soon and it is unknown how things will end for the new president. Or rather, it is known that the course will not change, but the speed of disengagement and its form may change - now the US lets China to out from its assets, but what will happen in 2025?
For now it probably makes no sense for China to introduce mutual trade import duties against America, but it is easier to dump American debts without noise and dust, because the negative effect on the American debt market is no less, but even greater than import duties. Sooner or later, the main “donor” of the American debt market, namely Japan, will also begin to sell US debt assets when the Japanese financial system runs out of excess monetary resources. This will be disaster, although it is difficult to suggest the way how it could happen, as the US have strong influence on Japan. But either buy back debt assets on the Fed’s balance sheet or allow a deep fall in the prices of your debts - anyway situation is unpleasant.
Speaking about Chinese "Real Estate QE", we could point on industrial deflation as the major reason and the first reduction in lending since 2005. At the same time, they talk about GDP growth of 5%. Taking into account the fact that yields on long-term government bonds are falling, it can be assumed that part of the new issue will be taken over by the market and, in particular, by state banks, but given the volume of placement, this cannot be done without the Central Bank.
Here is the news quote:
China vitally needs the demand for its goods from EU and the US - that's why Xi met with Macron and every time repeats that China is not in confrontation with the west. But, recent EU and the US steps suggest the opposite thing. The slogan is "You produce too much". And we suggest that this process will not stop. Once we already discussed this in details - previously it was justified by "Taiwan" issue, then it was "Russia support" but now the steps to hold China are evident and without any reasons. WTO is dead totally.
They increase the share of exports denominated in yuan instead of dollars, encourage state banks to sell American treasuries, drain dollar reserves to cover capital outflows of foreign investors, and at the same time control the movement of private capital outward, preventing private traders from accumulating American treasuries on their balance sheets, which may seem safer to them, than assets inside China. This is so far the most direct path for de-dollarization...
To be continued...
The world is falling apart guys. I'm speaking not about some catastrophe but directly about falling on parts. Recent events very evidently show this - Fico incident, Putin visit to China, Iran-India agreement. All these moments point on starting fragmentation. This once again confirms our suggestion that we're just in the beginning of the long path, and, generally speaking, the raising of the gold price is not started yet. Now we could see that gold market doesn't need any "gold specific" news, as we previously were watching for COT reports, sentiment, global consumption and some other specific stuff.
Now we see that it is driven by factors that can't be directly related to gold market. But, because they are global, they are become particular drivers for performance of the precious metal. This is because investors see what's going on. The majority still think, that everything bad will pass sideways, as it was many times in the past. But they are mistake. Those who are more careful and intelligent start taking some steps, until they could be taken. As we've said - go out from all the US assets and buy gold. We suggest that very soon all financial assets will be strongly devalued. Yes, we trade gold day by day, but our major task is accumulation and wealth preservation, finding good points where to do this with the best result.
Market overview
Gold rose to the highest in more than three weeks after latest data showed ebbing inflation and weak retail sales, reinforcing expectations that the Federal Reserve will start cutting interest rates this year.
Gold prices rebounded, helped by a pullback in the dollar and Treasury yields after data showed U.S. producer prices rose more than expected in April, suggesting inflation remained high. U.S. producer prices increased more than expected in April amid strong gains in the costs of services and goods, leading traders to pare back bets of a first rate cut in September. Meanwhile, Fed Chair Jerome Powell said he expects U.S. inflation to continue declining through 2024 as it did last year and noted it was unlikely the Fed would have to raise interest rates again.
On Wednesday, data showed U.S. consumer prices rose less than expected in April, boosting chances of the Federal Reserve cutting interest rates. U.S. CPI rose 0.3% last month after advancing 0.4% in March and February, suggesting that inflation resumed its downward trend at the start of the second quarter in a boost to financial market expectations for a September interest rate cut. Market participants are pricing in a roughly 68% chance that the Fed will cut rates in September, according to the CME FedWatch Tool.
Fed Bank of New York President John Williams said that positive news around cooling inflation is not enough to call for the U.S. central bank to cut interest rates sometime soon. Lower interest rates reduce the opportunity cost of holding non-yielding gold.
Gold prices, aided by China's stimulus measures, looked poised to clock their second consecutive weekly gain on Friday on renewed hopes for U.S. interest rate cuts, with silver breaking the $30 barrier to hit an 11-year high. The market was lifted after China, a major consumer of industrial metals as well as gold, announced "historic" steps to stabilise the crisis-hit property sector.
While the data provided some relief for policymakers looking to start cutting interest rates this year, they also pointed to potential economic weakness and sticky inflation, which would benefit gold as it’s a hedge against financial stress and price pressures.
Investors remain net sellers of gold exchange-traded funds so far this year, with total holdings down 5.9%, according to data compiled by Bloomberg.
Spot silver jumped 4.8% to $31.02 per ounce after breaking above a major resistance level of $30. The last time silver hit the $30 price level was in early 2021, but sustaining it for an extended period has eluded silver for more than a decade.
Carlyle Group’s Jeff Currie brought enthusiasm for commodities and a prop to his Surveillance appearance today. He brandished the copper bracelet on his right wrist to punctuate his point about surging prices for an industrial metal. Three factors drive the voracious appetite for copper: green energy, AI and military applications. As recently as 2019, before the pandemic, the latter two weren’t factors at all, Currie said, and that demand helps underpin his $15,000-per-ton price target.
Oil remains a solid asset, even with a recent pullback in Brent and WTI crudes. Still, “it’s not like the underlying copper story” because the Biden administration has election-year levers to pull, like tapping the Strategic Petroleum Reserve, to keep down prices temporarily, Currie said.
As with copper, gold is still poised to keep rallying, he added. And also like copper, the reason is a new constellation of drivers. “Dollar recycling” used to accompany price increases for commodities such as oil, when producers such as the Saudis would take their dollar proceeds and plow them back into US Treasuries.
THIS IS NOT A JOKE ANY MORE - GOLD RUSH IS SPREADING TO OTHER COMMODITIES
A key gauge for raw materials prices rose to the highest level in more than a year, throwing a wrench in central banks’ efforts to tamp down inflation. The Bloomberg Commodity Spot Index — which tracks 24 energy, metal and agricultural contracts — inched up Wednesday to the highest reading since April 2023. The overall consumer price index in the US rose 0.3% from the prior month and 3.4% from a year ago. Shelter and gasoline accounted for over 70% of the increase, the Bureau of Labor Statistics said in the report.
The mismatch between rapidly-growing demand and sluggish supply has already helped push copper prices to more than $10,000 a ton in London trading this week. But according to commodities veteran Jeff Currie, the metal still has more room to run.
Second is, silver has soared by more than a quarter this year, outpacing gold and making it one of the year’s best-performing major commodities. Yet in relative terms, silver is still cheap. It currently takes about 80 ounces of silver to buy 1 ounce of gold, compared with the 20-year average of 68. Recall how just 2-3 weeks ago we talked about the same ratio and the chart.
With gold hitting a record on central-bank buying, retail interest in China, and a resurgence in bets lower US interest rates are on the way, silver’s gone along for the ride. Although there’s been scant interest from investors in silver-backed exchange-traded funds, physical sales have picked up, including at Singapore-based dealer Silver Bullion Pte.
The metal is a key ingredient in solar panels, and with robust growth in that industry, usage of the metal is expected to reach a record this year, according to the Silver Institute. Against that backdrop, the market is headed for a fourth year in deficit, with this year’s shortage seen as the second biggest on record.
Citigroup Inc. reckons that if the Federal Reserve proceeds with interest-rate cuts and economic growth stays strong in the second half, the ratio could move to around 70, although it cautioned that a slowdown would push it the other way, according to a note.
Nickel prices spiked as much as 7.9% on the LME on Friday after violent protests broke out in New Caledonia, the world’s third-biggest supplier.
In general, guys - just briefly take a look at Commodities table and its performance YoY basis. It will be clear that it is not the story of just copper, silver, gold etc. This is actions across the board - basic, precious metals, rare metals, food, hydrocarbons etc. Yes there are exceptions, not all commodities are raising, but they are in minority. Besides, some of them are derivatives from the core, such as some fractions of natural gas, or steal is produced from Iron Ore that is also rising etc. How all these stuff relate to gold? We will explain lower...
What is going on?
The question that many people start to ask. To explain we should also put in chain few other interesting events. Let's step back for a moment out from commodities topic and take a look at China. There are two important events have happened recently. First is, China sold a record amount of Treasury and US agency bonds in the first quarter, highlighting the Asian nation’s move to diversify away from American assets as trade tensions persist. Beijing offloaded a total of $53.3 billion of Treasuries and agency bonds combined in the first quarter, according to calculations based on the latest data from the US Department of the Treasury. Belgium (!!!), often seen as a custodian of China’s holdings, disposed of $22 billion of Treasuries during the period.
Rumors tell that the peak of sell-off was a reason of sudden jump of the 10-year yields to 5%+ level and forced the US Treasury to made some efforts to hold market stable. With China selling dollar assets, its holdings of gold have risen in the nation’s official reserves. The share of the precious metal in the reserves climbed to 4.9% in April, the highest according to central bank data going back to 2015.
Second is - China starts Real Estate QE with unprecedented volumes. Initially programme suggests inflow for ~ $150 Bln. Let me remind you that China, with approx. equal to the US economy size has two times larger Money Supply already. Why it doesn't trigger inflation - this is different question. In two words speaking, the reason is in the way how China sterilizes the extra cash. They do it differently.
Yesterday we've talked about the US stimulus and the Fed and US Treasury activity on this way. Probably it is no needed to explain that all this huge inflows create healthy background for raising of the real assets, such as commodities. Although you do not see inflation in official data, but it doesn't mean that it doesn't exist, right? So let's have a look at some details...
Considering the fact that the second wave of inflation in the dollar is obviously accelerating - although now it’s not hydrocarbons that are leading the charge, but metals and food, any alternative to cash/non-cash money will be good.
And yes, in this case, the question for China and other large treasury holders is not to make money, but to save at least something. You can still jump out of there with a million, but it is impossible when you have $500 billions. Elections are coming soon and it is unknown how things will end for the new president. Or rather, it is known that the course will not change, but the speed of disengagement and its form may change - now the US lets China to out from its assets, but what will happen in 2025?
For now it probably makes no sense for China to introduce mutual trade import duties against America, but it is easier to dump American debts without noise and dust, because the negative effect on the American debt market is no less, but even greater than import duties. Sooner or later, the main “donor” of the American debt market, namely Japan, will also begin to sell US debt assets when the Japanese financial system runs out of excess monetary resources. This will be disaster, although it is difficult to suggest the way how it could happen, as the US have strong influence on Japan. But either buy back debt assets on the Fed’s balance sheet or allow a deep fall in the prices of your debts - anyway situation is unpleasant.
Speaking about Chinese "Real Estate QE", we could point on industrial deflation as the major reason and the first reduction in lending since 2005. At the same time, they talk about GDP growth of 5%. Taking into account the fact that yields on long-term government bonds are falling, it can be assumed that part of the new issue will be taken over by the market and, in particular, by state banks, but given the volume of placement, this cannot be done without the Central Bank.
Here is the news quote:
Considering the industry's contribution to GDP, Chinese manufacturers have suspiciously low profits. In general, they already work on a thin scale. So, in any case, it will be necessary to stimulate demand for industrial products; exports will definitely not grow due to duties on the part of buyers. But the problem is China has no as strong domestic resource of demand as the US does:
China vitally needs the demand for its goods from EU and the US - that's why Xi met with Macron and every time repeats that China is not in confrontation with the west. But, recent EU and the US steps suggest the opposite thing. The slogan is "You produce too much". And we suggest that this process will not stop. Once we already discussed this in details - previously it was justified by "Taiwan" issue, then it was "Russia support" but now the steps to hold China are evident and without any reasons. WTO is dead totally.
They increase the share of exports denominated in yuan instead of dollars, encourage state banks to sell American treasuries, drain dollar reserves to cover capital outflows of foreign investors, and at the same time control the movement of private capital outward, preventing private traders from accumulating American treasuries on their balance sheets, which may seem safer to them, than assets inside China. This is so far the most direct path for de-dollarization...
To be continued...
