Sive Morten
Special Consultant to the FPA
- Messages
- 19,200
Fundamentals
Once again we do not have any gold specific news this week, but it doesn't mean that J. Powell speech and revision of job market data make no impact on gold. Besides, the fact of revision itself, already makes investors to think. Finally Robert Kennedy speech and P. Durov arrest in Paris also a kind of epic moments. All these events seem small separately, but together they create a solid background that reflects modern World.
Market overview
Gold prices gained more than 1% on Friday as the dollar and Treasury yields retreated following comments from Federal Reserve Chair Jerome Powell that signalled an interest rate cut in September. Powell said "the time has come" for the U.S. central bank to cut interest rates and that inflation was nearing the Fed's 2% target, offering an explicit endorsement of an imminent policy easing. Powell affirmed expectations that officials will begin lowering borrowing costs next month and made clear his intention to prevent further cooling in the US labor market. Treasury yields and the dollar pushed lower, helping boosting bullion by as much as 1.3%.
That narrative has dragged real rates lower, creating a more favorable environment for bullion, which doesn’t pay interest. The recent moves — higher gold prices and lower rates — signal that traditional macro drivers such as bond yields are returning to the fore.
Lower U.S. interest rates also generally increase the relative appeal of zero-yield bullion. Gold might be over-positioned to the long end and we could see sell offs and some profit-taking, said Bart Melek, head of commodity strategies at TD Securities. Traders are expecting a 59.5% chance of a 25-basis point cut in September, while 40.5% expect a deeper 50-bps reduction. Swaps pricing shows that traders are unsure whether to expect three or four 25-basis-point cuts across the remaining Fed policy meetings this year.
At the July meeting, "the vast majority" of policymakers "observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting," according to the minutes. Following the Fed minutes, the dollar extended losses to a more than seven-month low, while benchmark U.S. 10-year bond yields fell to a more than two-week low.
Downward revision of US payrolls reinforced expectations that policymakers will cut interest rates in September. Several Federal Reserve officials acknowledged there was a plausible case for cutting interest rates at their July 30-31 meeting before the central bank’s policy committee voted unanimously to keep them steady. US job growth was probably far less robust in the year through March than previously reported, according to government data released Wednesday. The number of workers on payrolls will likely be revised down by 818,000 for the 12 months through March, according to the Bureau of Labor Statistics’ preliminary benchmark revision.
With markets anticipating an imminent pivot by the Fed to lower borrowing costs, the backdrop for bullion is looking increasingly bullish. UBS Global Wealth Management’s Wayne Gordon sees prices heading toward $2,700 an ounce by the middle of next year.
Geopolitical tensions, uncertainty created by the upcoming U.S. Presidential election and prospective interest rate cuts look set to help power gold prices, already at records above $2,500 an ounce, to even loftier levels.
As gold has pushed higher, hedge funds and speculators have been getting more engaged. Net-bullish bets on Comex futures stand close to the four-year high set in mid-July, according to Commodity Futures Trading Commission data. A 9% rise in open interest last week implies investors are getting more optimistic about bullion, rather than just closing out short positions. Still, in the near term, positioning now appears bloated, and funds may be vulnerable, according to Daniel Ghali, senior commodity strategist at TD Securities
Further contributing to the upsurge in gold prices is that investors have been piling into physically-backed gold exchange traded funds (ETFs), which recorded net inflows last week of 8.5 metric tons, according to the World Gold Council (WGC). "Rate cuts could see interest rate-sensitive investors return to gold via ETFs," said Ole Hansen, head of commodity strategy at Saxo Bank. While gold prices rose sharply in March and April, holdings in ETFs continued to see net outflows, with a global tally hitting the lowest since 2019 in mid-May. From June, however, the tide seems to have shifted, with ETFs posting two months of net inflows.
On the physical front, several Chinese banks have been given new gold import quotas from the central bank, anticipating revived demand despite record high prices.
Gold demand is strong as geopolitical tensions, particularly from the Israel-Iran-Hamas conflict, drives safe-haven buying, Achilleas Georgolopoulos, investment analyst at forex broker XM, wrote in a note.
The milestone was reached Friday, when the precious metal’s spot price surpassed $2,500 per troy ounce, an all-time high. With gold bars typically weighing about 400 ounces, that would make each one worth more than $1 million.
Mike McGlone senior Bloomberg economist speaks on Gold:
We have the difference between an enduring bull market.That's gold right now. It's said if you end the week, the month, now it's at a record high and an enduring bear market that's crude oil.The price in the screen you see right now, WTI $74 a barrel about there was first traded in 2006. That's almost 20 years ago. And as we tilt towards this easing cycle, typically that spread with gold outperforming crude oil widens. And it looks like it's just getting started. First of all, you buried the lead.
So the record high, though, that we saw back in goal that we keep hitting here, I'm really struggling as to what is actually leading it because, you know, the last ten years and we had low rates and all that, gold did a whole lot of nothing.
And it has just been feeling like a nonstop tear in the last few years. Let's start with two things the unstoppable rise in U.S. debt to GDP, the very expensive U.S. stock market, the Federal Reserve's tilting towards easing. And the most significant elephant in the room is the unlimited friendship between President Z and President Putin. That shifted the world order in favor of gold. And it looks like history accelerates with the biggest, deepest pockets on the planet, i.e. starting with China, have been buying the metal.
And it looks like once we get a little bit of reversion in lower yields, i.e. T-bills, not at 5% anymore and maybe just a little back and fill in the stock market. Global shine. It looks like it's continuing to do that now. Right now it's a little bit overdone. Manage money, net positions, i.e. futures are really long for a reason. It's a bull market, but the narrative for gold is quite strong and I'll just end with is gold is historically very cheap versus S&P 500 if you just take it divided by the ounces, divided by the index, particularly when you enter recessions, what oftentimes happens when you enter a recession, the Fed eases that, that spreads.
It kind of narrows a little bit what would take or what would change. This seems to be a structural bullish call on gold. he detente that's happening globally is part of what's really driving gold, is somewhat getting away from the dollar, looking for an alternative to U.S. treasuries, particularly with yields dropping and the debt to GDP just continued to rise. So that to me would be one of the most significant things. Otherwise, it looks to me, wants to get a little bit of reversion lower in the stock market, which at some point will happen. Gold will probably shine like long bonds like on the month. Now on the quarter, now gold's up about 8% in the U.S. Treasury. That Bloomberg 20 plus long bond index is up about the same about 8%. What about positioning at this point? Like I know the central banks are buyers, etc. and that and price spikes, you're not going to see a lot of physical buying also, etc..
But who's left to buy in the futures market? About 44% of total comics futures positions are speculative longs. It's very high. The high it really gets much, much higher and 48. But what's really happened is we've had significant outflows in gold ETFs since that peak in 2020. They're just starting to turn to inflows and I think that is part of that alternative. You see people going to cash and bonds. They're looking for alternatives to expensive stock market, so that looks like it's just rolling over. But if you get a day like we had on August 5th when markets go down, yeah, you hit that, you sell what you can. And there's a lot of speculative longs in gold at the moment for good reason though. It's a bull market.
Finally, as indirect indicator of bullish sentiment, a massive vault has opened in Singapore as wealthy investors and families seek more secure places to store physical gold bars and precious metals. The Reserve can store 500 tonnes of gold. Silver Bullion Pte Ltd. says the company is inundated with inquiries from customers. Demand for physical gold will continue to grow.
TWO CENTS ABOUT SILVER
We usually talk about a gold only, but silver might be very interesting alternative, or better to say an add-on to precious metals portfolio. It costs cheaper and it is easier to afford coins or bullions. Yes, it has some specific and it follows gold discretionary as silver is also an industrial metal - some time it could not follow but then to make sudden jump.
Now situation stands so that gold is showing gradual upside action and we think that it will continue in long term. Still, silver is stuck around 30$ resistance area and you could see some divergence with gold, that is set the new ATH. Meantime we get very positive fundamental news for silver. For example - India's silver imports are on course to nearly double this year due to rising demand from solar panel and electronics makers, and as investors bet the metal will give better returns than gold, leading importers said on Friday.
This year's purchases could rise to between 6,500 and 7,000 tons due to the rising industrial demand, said Chirag Thakkar, CEO of Amrapali Group Gujarat, a leading silver importer. India's silver imports in the first half of 2024 jumped to 4,554 tons from 560 tons (!!!) a year ago, trade ministry data showed. India slashed import duties on silver in July to 6% from 15%, a step aimed at tackling smuggling. Thakkar, CEO of Amrapali Group Gujarat, a leading silver importer said investment demand had been "phenomenal" in the first half of the year as people bought silver anticipating that it would give them a better return than gold.
the fact is that consumption is growing steadily almost every year, while production, on the contrary, is stagnating and even falling. Global silver demand and consumption is at 1.3 billion ounces per year, but old mines are already depleted, there is almost no new capacity and global silver production is only 830 million ounces as of 2023.
Over the past decade, industrial mining has added less than 10 million ounces of new (mine) production annually, and in the next decade that figure will drop to about 6 million ounces per year unless there is some breakthrough in mining. Thus, starting from the 1930s, a supply deficit will form while the current demand remains.
Thus, don't ignore silver. It doesn't mean that you should replace gold totally, but it might be good alternative if you do not have enough funds but want to invest in precious metals. Second is - in a way of diversification of precious metals portfolio.
OTHER ISSUES
Recent Fed policy is based on idea of strong consumption and as you know last month we've got stunning 1% growth. But as we have shown many times already, based on personal savings level, strong consumption is a myth and official data also might be manipulated and revised very soon. Additionally to high delinquency on credit cards (now 11% of all credits are past due for 90+ days), take a look at spending in summer time.
For almost all of July and most of August, shares of global companies in the travel and leisure sector were actively declining in price, although they usually grew during the holiday season and now it is clear that the reason is the drop in demand. The average trip duration decreased by 14% compared to last year. If even in America there is a recession, then you can imagine how quickly demand in the world has shrunk, and the reason is simple - it is now expensive to travel.
Second is, personal spending dropped for 1% just in a week. This is add on to our conversation or record goods import in the US sea ports that we discussed yesterday.
Now is the minor question - whether it will be as usual or slightly different. But for gold market is has no big deal.
TWO WORDS ON CHINA
Although people think that the US and China are separate economies, in fact they are the same. Both falsificate statistics, but combined view shows what is going on. You could not see it in the US, but Chinese data shows it. Even brief look shows you that China is near recession (or already in there) in the same way as of Japan. It has very high Debt/GDP ratio (higher than the US) similar to Japan. Recent statistics looks bad. China's first contraction in bank lending in nearly 20 years has fuelled fears that the world's No. 2 economy is heading for a "balance sheet recession" like Japan's did decades ago.
Foreign investors have pulled a record amount of money out of China. China's direct investment liabilities in the balance of payments fell by almost $15 billion between April and June, marking only the second time the figure has been negative. At the same time , the volume of Chinese outbound investment reached a record level: in the second quarter, companies sent $71 billion abroad , which is 80% more than $39 billion in the same period last year.
It means that we should forget about 5+% GDP growth soon. Yes it will hold for some time by existed momentum, but we have to understand. China was and is the construction site of the World. They have built huge production capacities to produce concrete, reinforcement etc. but it doesn't needed any more and nobody in the world can't buy it in such an amount. Since it was financed by big government debt, now it could start folding as a tent. In the US we have different problems but they both are the sides of the same medal. And China economy shows that the US in troubles as well. This is a kind of look from overseas. You could see in what situation Japan now is, they are trapped between inflation and economy collapse. In China could happen the same, especially if D. Trump will keep his tariffs war.
Once again we do not have any gold specific news this week, but it doesn't mean that J. Powell speech and revision of job market data make no impact on gold. Besides, the fact of revision itself, already makes investors to think. Finally Robert Kennedy speech and P. Durov arrest in Paris also a kind of epic moments. All these events seem small separately, but together they create a solid background that reflects modern World.
Market overview
Gold prices gained more than 1% on Friday as the dollar and Treasury yields retreated following comments from Federal Reserve Chair Jerome Powell that signalled an interest rate cut in September. Powell said "the time has come" for the U.S. central bank to cut interest rates and that inflation was nearing the Fed's 2% target, offering an explicit endorsement of an imminent policy easing. Powell affirmed expectations that officials will begin lowering borrowing costs next month and made clear his intention to prevent further cooling in the US labor market. Treasury yields and the dollar pushed lower, helping boosting bullion by as much as 1.3%.
That narrative has dragged real rates lower, creating a more favorable environment for bullion, which doesn’t pay interest. The recent moves — higher gold prices and lower rates — signal that traditional macro drivers such as bond yields are returning to the fore.
Lower U.S. interest rates also generally increase the relative appeal of zero-yield bullion. Gold might be over-positioned to the long end and we could see sell offs and some profit-taking, said Bart Melek, head of commodity strategies at TD Securities. Traders are expecting a 59.5% chance of a 25-basis point cut in September, while 40.5% expect a deeper 50-bps reduction. Swaps pricing shows that traders are unsure whether to expect three or four 25-basis-point cuts across the remaining Fed policy meetings this year.
At the July meeting, "the vast majority" of policymakers "observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting," according to the minutes. Following the Fed minutes, the dollar extended losses to a more than seven-month low, while benchmark U.S. 10-year bond yields fell to a more than two-week low.
Downward revision of US payrolls reinforced expectations that policymakers will cut interest rates in September. Several Federal Reserve officials acknowledged there was a plausible case for cutting interest rates at their July 30-31 meeting before the central bank’s policy committee voted unanimously to keep them steady. US job growth was probably far less robust in the year through March than previously reported, according to government data released Wednesday. The number of workers on payrolls will likely be revised down by 818,000 for the 12 months through March, according to the Bureau of Labor Statistics’ preliminary benchmark revision.
With markets anticipating an imminent pivot by the Fed to lower borrowing costs, the backdrop for bullion is looking increasingly bullish. UBS Global Wealth Management’s Wayne Gordon sees prices heading toward $2,700 an ounce by the middle of next year.
Geopolitical tensions, uncertainty created by the upcoming U.S. Presidential election and prospective interest rate cuts look set to help power gold prices, already at records above $2,500 an ounce, to even loftier levels.
As gold has pushed higher, hedge funds and speculators have been getting more engaged. Net-bullish bets on Comex futures stand close to the four-year high set in mid-July, according to Commodity Futures Trading Commission data. A 9% rise in open interest last week implies investors are getting more optimistic about bullion, rather than just closing out short positions. Still, in the near term, positioning now appears bloated, and funds may be vulnerable, according to Daniel Ghali, senior commodity strategist at TD Securities
Further contributing to the upsurge in gold prices is that investors have been piling into physically-backed gold exchange traded funds (ETFs), which recorded net inflows last week of 8.5 metric tons, according to the World Gold Council (WGC). "Rate cuts could see interest rate-sensitive investors return to gold via ETFs," said Ole Hansen, head of commodity strategy at Saxo Bank. While gold prices rose sharply in March and April, holdings in ETFs continued to see net outflows, with a global tally hitting the lowest since 2019 in mid-May. From June, however, the tide seems to have shifted, with ETFs posting two months of net inflows.
On the physical front, several Chinese banks have been given new gold import quotas from the central bank, anticipating revived demand despite record high prices.
Gold demand is strong as geopolitical tensions, particularly from the Israel-Iran-Hamas conflict, drives safe-haven buying, Achilleas Georgolopoulos, investment analyst at forex broker XM, wrote in a note.
The milestone was reached Friday, when the precious metal’s spot price surpassed $2,500 per troy ounce, an all-time high. With gold bars typically weighing about 400 ounces, that would make each one worth more than $1 million.
Mike McGlone senior Bloomberg economist speaks on Gold:
We have the difference between an enduring bull market.That's gold right now. It's said if you end the week, the month, now it's at a record high and an enduring bear market that's crude oil.The price in the screen you see right now, WTI $74 a barrel about there was first traded in 2006. That's almost 20 years ago. And as we tilt towards this easing cycle, typically that spread with gold outperforming crude oil widens. And it looks like it's just getting started. First of all, you buried the lead.
So the record high, though, that we saw back in goal that we keep hitting here, I'm really struggling as to what is actually leading it because, you know, the last ten years and we had low rates and all that, gold did a whole lot of nothing.
And it has just been feeling like a nonstop tear in the last few years. Let's start with two things the unstoppable rise in U.S. debt to GDP, the very expensive U.S. stock market, the Federal Reserve's tilting towards easing. And the most significant elephant in the room is the unlimited friendship between President Z and President Putin. That shifted the world order in favor of gold. And it looks like history accelerates with the biggest, deepest pockets on the planet, i.e. starting with China, have been buying the metal.
And it looks like once we get a little bit of reversion in lower yields, i.e. T-bills, not at 5% anymore and maybe just a little back and fill in the stock market. Global shine. It looks like it's continuing to do that now. Right now it's a little bit overdone. Manage money, net positions, i.e. futures are really long for a reason. It's a bull market, but the narrative for gold is quite strong and I'll just end with is gold is historically very cheap versus S&P 500 if you just take it divided by the ounces, divided by the index, particularly when you enter recessions, what oftentimes happens when you enter a recession, the Fed eases that, that spreads.
It kind of narrows a little bit what would take or what would change. This seems to be a structural bullish call on gold. he detente that's happening globally is part of what's really driving gold, is somewhat getting away from the dollar, looking for an alternative to U.S. treasuries, particularly with yields dropping and the debt to GDP just continued to rise. So that to me would be one of the most significant things. Otherwise, it looks to me, wants to get a little bit of reversion lower in the stock market, which at some point will happen. Gold will probably shine like long bonds like on the month. Now on the quarter, now gold's up about 8% in the U.S. Treasury. That Bloomberg 20 plus long bond index is up about the same about 8%. What about positioning at this point? Like I know the central banks are buyers, etc. and that and price spikes, you're not going to see a lot of physical buying also, etc..
But who's left to buy in the futures market? About 44% of total comics futures positions are speculative longs. It's very high. The high it really gets much, much higher and 48. But what's really happened is we've had significant outflows in gold ETFs since that peak in 2020. They're just starting to turn to inflows and I think that is part of that alternative. You see people going to cash and bonds. They're looking for alternatives to expensive stock market, so that looks like it's just rolling over. But if you get a day like we had on August 5th when markets go down, yeah, you hit that, you sell what you can. And there's a lot of speculative longs in gold at the moment for good reason though. It's a bull market.
Finally, as indirect indicator of bullish sentiment, a massive vault has opened in Singapore as wealthy investors and families seek more secure places to store physical gold bars and precious metals. The Reserve can store 500 tonnes of gold. Silver Bullion Pte Ltd. says the company is inundated with inquiries from customers. Demand for physical gold will continue to grow.
TWO CENTS ABOUT SILVER
We usually talk about a gold only, but silver might be very interesting alternative, or better to say an add-on to precious metals portfolio. It costs cheaper and it is easier to afford coins or bullions. Yes, it has some specific and it follows gold discretionary as silver is also an industrial metal - some time it could not follow but then to make sudden jump.
Now situation stands so that gold is showing gradual upside action and we think that it will continue in long term. Still, silver is stuck around 30$ resistance area and you could see some divergence with gold, that is set the new ATH. Meantime we get very positive fundamental news for silver. For example - India's silver imports are on course to nearly double this year due to rising demand from solar panel and electronics makers, and as investors bet the metal will give better returns than gold, leading importers said on Friday.
This year's purchases could rise to between 6,500 and 7,000 tons due to the rising industrial demand, said Chirag Thakkar, CEO of Amrapali Group Gujarat, a leading silver importer. India's silver imports in the first half of 2024 jumped to 4,554 tons from 560 tons (!!!) a year ago, trade ministry data showed. India slashed import duties on silver in July to 6% from 15%, a step aimed at tackling smuggling. Thakkar, CEO of Amrapali Group Gujarat, a leading silver importer said investment demand had been "phenomenal" in the first half of the year as people bought silver anticipating that it would give them a better return than gold.
the fact is that consumption is growing steadily almost every year, while production, on the contrary, is stagnating and even falling. Global silver demand and consumption is at 1.3 billion ounces per year, but old mines are already depleted, there is almost no new capacity and global silver production is only 830 million ounces as of 2023.
Over the past decade, industrial mining has added less than 10 million ounces of new (mine) production annually, and in the next decade that figure will drop to about 6 million ounces per year unless there is some breakthrough in mining. Thus, starting from the 1930s, a supply deficit will form while the current demand remains.
Thus, don't ignore silver. It doesn't mean that you should replace gold totally, but it might be good alternative if you do not have enough funds but want to invest in precious metals. Second is - in a way of diversification of precious metals portfolio.
OTHER ISSUES
Recent Fed policy is based on idea of strong consumption and as you know last month we've got stunning 1% growth. But as we have shown many times already, based on personal savings level, strong consumption is a myth and official data also might be manipulated and revised very soon. Additionally to high delinquency on credit cards (now 11% of all credits are past due for 90+ days), take a look at spending in summer time.
For almost all of July and most of August, shares of global companies in the travel and leisure sector were actively declining in price, although they usually grew during the holiday season and now it is clear that the reason is the drop in demand. The average trip duration decreased by 14% compared to last year. If even in America there is a recession, then you can imagine how quickly demand in the world has shrunk, and the reason is simple - it is now expensive to travel.
Second is, personal spending dropped for 1% just in a week. This is add on to our conversation or record goods import in the US sea ports that we discussed yesterday.
Now is the minor question - whether it will be as usual or slightly different. But for gold market is has no big deal.
TWO WORDS ON CHINA
Although people think that the US and China are separate economies, in fact they are the same. Both falsificate statistics, but combined view shows what is going on. You could not see it in the US, but Chinese data shows it. Even brief look shows you that China is near recession (or already in there) in the same way as of Japan. It has very high Debt/GDP ratio (higher than the US) similar to Japan. Recent statistics looks bad. China's first contraction in bank lending in nearly 20 years has fuelled fears that the world's No. 2 economy is heading for a "balance sheet recession" like Japan's did decades ago.
Foreign investors have pulled a record amount of money out of China. China's direct investment liabilities in the balance of payments fell by almost $15 billion between April and June, marking only the second time the figure has been negative. At the same time , the volume of Chinese outbound investment reached a record level: in the second quarter, companies sent $71 billion abroad , which is 80% more than $39 billion in the same period last year.
It means that we should forget about 5+% GDP growth soon. Yes it will hold for some time by existed momentum, but we have to understand. China was and is the construction site of the World. They have built huge production capacities to produce concrete, reinforcement etc. but it doesn't needed any more and nobody in the world can't buy it in such an amount. Since it was financed by big government debt, now it could start folding as a tent. In the US we have different problems but they both are the sides of the same medal. And China economy shows that the US in troubles as well. This is a kind of look from overseas. You could see in what situation Japan now is, they are trapped between inflation and economy collapse. In China could happen the same, especially if D. Trump will keep his tariffs war.
. Fixed it. Thank you !