Ground Control to Chaiman Powell

A soft countdown of the initiation of tapering the Federal Reserve’s $120 billion monthly expenditure has begun. The Federal Reserve began dramatically infusing liquidity and money into the capital markets beginning in 2020. The initial effect was to temper or slowed down the rate at which the recession was expanding and morphed into a technique used to aid in the economic recovery that was a direct result of the economic hardship caused by the recession.

This dramatic action by the Federal Reserve has only occurred two times in history. The first time the Federal Reserve used quantitative easing to ease a deep financial crisis was in 2009. This recession was a result of a banking crisis and resulted in a deep depression. During that period, the gross domestic product contracted at the fastest rate seen in 50 years and concurrently the economy was losing hundreds of thousands of jobs every month. This program began after the Federal Reserve already reduced interest rates to near zero. However that action was not enough to temper the expanding recession let alone aid in the economic recovery. From 2008 through 2015 the Federal Reserve began accumulating massive amounts of assets which they added to their balance sheet.

Prior to initiating this new technique labeled “Quantitative Easing,” the Federal Reserve’s asset balance sheet stood at approximately $900 billion. Over the next seven years, from 2008 through 2015 the Fed would continue to accumulate assets swelling their balance sheet from under $1 trillion to $4.5 trillion. This process occurred in four distinct steps labeled QE1 through QE4. Members of the Federal Reserve contended that this unconventional monetary policy was a major component that saved the United States from a crisis worse than the great depression.

However, this program was not without costs. CNBC reported that “The Fed’s low-interest-rate policy made it inexpensive for the government to continue to borrow and spend. U.S. public debt is near $20 trillion and some fear that bubble could burst as the Fed steps out of the government market.” This untested experimental monetary policy was unwound first by tapering or lessening the monthly purchases of assets which were followed by a reduction in assets as the Fed would let billions of dollars of securities each month mature and not reinvest in them. They took the $4.5 trillion balance sheet and reduced it to $3.7 trillion before they made the decision that further reduction would hurt the economy.

So, what does Quantitative Easing have to do with tomorrow’s jobs report

In 2020 the Federal Reserve for the second time in history reignited this monetary policy of massive asset purchases as it did to temper the recession in 2008 and aid in an economic recovery. Beginning with a balance sheet of just under $4 trillion in just under two years they have swelled their asset balance sheet to $8.4 trillion. While the Fed had acknowledged that at some point, they would begin to normalize their extremely accommodative monetary policy there was no concrete timeline. The Federal Reserve maintained that it would unwind this process when the data supported that the economy was recovering and that labor was returning to maximum employment. During Chairman Powell’s most recent speech which occurred at a press conference following the last FOMC meeting he said that the discussion to begin tapering has begun and that they will begin to unwind the process “soon.”

More recent comments by Chairman Powell and other Fed members have suggested that tapering could begin as early as November, October or December if the data continues to support growth in employment.

It is for that reason that so much attention will be paid to tomorrow’s jobs report issued by the Labor Department. Forecasts from economists polled range from tomorrow’s numbers indicating an additional 400,000 to 500,000 jobs being added in September. However, forecast by analysts have really been hit or miss. For example, the forecast for the number of jobs added in August was about 700,000 new individuals being added to payrolls, and the actual numbers came in and a tepid 243,000 new jobs. July 2020 unquestionably had the most robust increase of jobs being reported just shy of 1 million and that report came

Byin well over expectations.

This month’s report for September jobs is critical because it will give the Federal Reserve the necessary information to make a concrete decision as to the timeline to begin to taper.

Geary Wagner

Contributing to kitco.com

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Gold has fractional gains even with moderate dollar strength

both gold and silver gained fractional ground with gold as of 6:10 PM Eastern Standard Time fixed at $1763.90, after factoring in today’s gain of $1.90, or 0.11%. Silver gained $0.12 in trading today and basis the December futures contract is currently fixed at $22.65 which amounts to a percentage gain of 0.52%. The prices quoted our based upon the opening in Australia as the financial markets begin to trade overseas on Thursday morning.

Today’s gains occur in conjunction with dollar strength. The dollar index today gained 0.30% and is currently fixed at 94.245.

This is a dramatic reversal from today’s close in New York. As Reuters news reported this morning, “Gold prices were subdued on Wednesday due to a stronger dollar, although a slight retreat in U.S. Treasury yields limited losses for the safe-haven metal, with investors awaiting U.S. Labour market data due later this week.”

According to the Reuters report spot gold was down 0.1% at $1758.08 per ounce by 10:15 AM EDT. Gold traded to a low of $1744.84 and a high of $1765.90. Clearly gold settled just a few dollars off of today’s intraday high in New York.

Market participants traders and investors are putting their major bets on hold as they await on the U.S. nonfarm payroll data which will be released by the U.S. Labor Department on Friday, October 8. One insight to glean from today’s moderate gains is that for gold and silver to rally prior to the release of Fridays jobs report is impressive given the unknowns as to what the report will reveal. Gold is also moving higher against strong crosswinds which are the net result of the continuing rise of U.S. treasuries, even though they pulled back slightly from the recent highs with the 10-year Treasury note currently yielding 1.57%.

Another factor that has limited any strong upside move in gold is the current forecasts for Friday’s jobs report. ADP released their U.S. private jobs report in September today which revealed a strong rise in the September numbers. The ADP U.S. private sector employment data revealed today showed robust numbers above expectations revealing that 568,000 new jobs were added in September, this was the initial force that moved gold lower during the trading session. Economists that were pulled by Wall Street Journal had forecast that only 425,000 jobs would be added. This is in stark contrast to the August Labor Department’s report in which it was forecast that over 700,000 jobs were added in August. There forecast was almost excessively above the numbers released by the Labor Department with only 245,000 jobs being added.

However, it is the U.S. Labor Department’s report on Friday that will be the key report that will influence and shape the Federal Reserve’s current plan to begin tapering.

Reuters cited that Xio Fu, the head of commodities markets strategy at the bank of China International expressed that even if nonfarm payroll data is not “spectacular and just in line with expectations,” many voting members of the Federal Reserve are already convinced that the necessary components initiating the tapering process have already been fulfilled. For tapering. It is of Fu’s belief that tapering is an integral component which is pressuring gold pricing.

Furthermore, the article in Reuters cited a note penned by TD securities analysts in which they said, "months of continued ETF liquidations reflect the poor sentiment that is pervasive across the precious metals complex", their conclusion was that due to this fact the underlying motivation to own gold are becoming more compelling.

It is clear that there are more questions and answers in regards to the outcome of Fridays jobs report. The only certainty is that regardless of the strength or weakness of the report it will have a strong and profound impact on the financial markets and specifically gold.

By Gary Wagner

Contributing to kitco.coam

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David

Gold price headed to $5,500 in the long term as central banks won’t be able to exit unorthodox monetary policies

Gold price headed to $5,500 in the long term as central banks won't be able to exit unorthodox monetary policies

The Federal Reserve's potential plan to reduce its monthly bond purchase by the end of the year continues to weigh on the gold market as prices remain tethered to support around $1,750 an ounce. However, one investment firm continues to see gold prices pushing thousands of dollars higher in the long-term.

In a report published Tuesday, investment bank Jefferies Group said that gold and Bitcoin remain essential hedges as the threat of stagflation – an environment of low growth and higher inflation – continues to grow.

Although the market continues to struggle in the near-term, analysts at Jefferies said that their long-term forecast remains in place for gold prices to push to $5,500 an ounce.

"This has been derived by comparing the January 1980 peak gold price of US$850/oz with the increase in US nominal personal disposable income per capita since then. The gold price was then equivalent to 9.9% of US disposable income per capita which was $8,547. The gold price is now $1,757/oz or 3.2% of US disposable income per capita of $54,671," the analysts said. "Still, in the near-term gold will remain vulnerable to tapering concerns."

the firm remains bullish on gold as central banks discover that it is easier to embark on unorthodox monetary policies than it is to exit them.

"The long-term view here remains the same as it has been for many years. That is that G7 central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another. Such policies will increasingly discredit those central banks which have pursued unconventional monetary policy, threatening the stability and indeed integrity of the current fiat-paper-money system," the analysts said.

Along with gold, the firm also sees potential for bitcoin prices to rise as fiat-currencies are debased. The firm's global portfolio for US-dollar-based long-term global investors hold's 5% in the crypto currency.

"The allocation to Bitcoin has been introduced because it has become clear that it represents a legitimate alternative for risk averse capital looking for a store of value, amidst accumulating evidence of policies of currency debasement in the G7 world," the analysts said.

"It should also be emphasized again that the investments in gold and Bitcoin are viewed as insurance, not as short-term trades. This is a long-term portfolio, which seeks to balance the long-term risks and opportunities in the current global context," the report added.

By Neils Christensen

For Kitco News

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Gold price to ‘revisit its peak’ soon, says Bloomberg Intelligence

Gold price to 'revisit its peak' soon, says Bloomberg Intelligence

After reaching new all-time highs over a year ago, gold is bound to climb back to its peak soon, said Bloomberg Intelligence in its October price outlook.

"It's only been about a year since gold's last peak, and we believe it should be a relatively short matter of time to revisit," said Bloomberg Intelligence senior commodity strategist Mike McGlone. "Gold has outperformed most major commodities in the past 20 years."

Gold's new all-time high stands above $2,060 an ounce, which was hit back in August 2020. At the time of writing, December Comex gold futures were trading at $1,769.30, up 0.62% on the day.

Despite this year's failure to launch, gold is still in an enduring bull market, McGlone pointed out.

"Gold, like Treasury prices, has an enduring bull market in its favor, and a correction within that trend improves its relative value," he said. "Gold appears too cold approaching the start of 4Q … Risks tilt toward a continuation of September's stock-market volatility, which should favor gold in 4Q."

The question McGlone asked in his October outlook is whether gold has reached its maximum disdain? This seems to be the psychological marker it needs to breach before resuming its rally.

So far, the yellow metal has been having a disappointing year, failing to attract new buyers despite inflation fears and debt worries. Year-to-date, gold is down more than 7% after selling off at the $1,800 an ounce level multiple times.

The main obstacle for gold has been a strong U.S. stock market, according to McGlone.

"The metal's nemesis — the U.S. stock market — hasn't had a meaningful pullback since the 2020 low. If equities are entering a more sustained wobbling period, we see gold, Treasury bonds and Bitcoin as top contenders for outperformance," he wrote. "It's a question of whether gold has reached a level of maximum disdain, which is probably close."

Industrial metals, on the other hand, are unluckily to cover unless the stock market does.

"We believe industrial metals have little chance of appreciating. A strengthening dollar and weakening China typically aren't good for copper. Rare among metals, gold prices seem too cold," McGlone noted. Several things are working against industrial metals: copper peaking just above $10,000 a ton in May, China cutting its required reserve ratio in July and issues with Evergrande coming to the forefront in September. Risks tilt toward more reversion in 4Q."

By Anna Golubova

For Kitco News

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Expect $30 silver price, then $50 soon after, by 2022 – Steve Penny

Once silver breaches $30, there would be minimal resistance keeping it back from hitting $50, said Steve Penny, publisher of The Silver Chartist report.

Penney told David Lin, anchor for Kitco News, that $50 or even $30 an ounce for silver is unlikely to happen by the end of the year.

"I think we're very close to a bottom here. There still is some downside risk to potentially $18 or $19 silver, but it's a high enough probability that we should be mentally prepared for. The big number to watch for is $30, I think everyone knows that," he said. "Once we get above $30, I think we do get to $50 fairly quick, probably within a quarter or two, because there's not much resistance between $30 and $50 silver. I'll say once we get through $30, I think $50 comes pretty quick, probably not in 2021, but perhaps in the first half of 2022."

For more information on Penny's predictions and the industrial use cases of silver, watch the video above. Follow David Lin on Twitter: @davidlin_TV.

By David Lin

For Kitco Newsfinancial crisis, undermine U.S. dollar

1. Gold price jumps $40 as Fed's Powell says the U.S. still 'far from full employment'

By Anna Golubova

For Kitco News

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David

Have you given up on gold? Surprising comeback after volatile week

It has been a very volatile week for gold. After dropping $30, the precious metal surged back to its very familiar territory of $1,750-$1,760 an ounce.

Soaring U.S. Treasury yields and a higher U.S. dollar were the main obstacles for gold. And despite avoiding a government shutdown in the U.S. this week, there is still the threat of default as the heated debt ceiling debate continues. Here's a look at Kitco's top 3 stories of the week:

3. Robert Kiyosaki: 'The biggest crash in world history' hits this October

2. Gold price sees double-digit drop as Yellen says failure to raise debt ceiling will trigger financial crisis, undermine U.S. dollar

1. Gold price jumps $40 as Fed's Powell says the U.S. still 'far from full employment'

By Anna Golubova

For Kitco News

Buy and Sell Gold and Silver with Free Storage

David

Stagflation risk is back and gold price is ready to react – atnalyss

stagflation risk is back on the table as the looming energy crisis stirs up old inflation fears. This is good news for gold, which proved this week that there is strong buying interest below the $1,750 an ounce level, according to analysts.

After falling towards $1,720 an ounce mid-week, gold surprised with a quick double-digit recovery to $1,760 on Friday.

The original downward pressure on gold came as markets prepared for the Federal Reserve's tapering in November. This pushed U.S. Treasury yields and the U.S. dollar higher while putting strong downward pressure on gold.

"What's been driving gold these days is market pricing of Fed's exit. Both the tapering and a potential rate hike on the horizon were being priced in," TD Securities commodity strategist Daniel Ghali told Kitco News. "As a result of that, we've seen substantial repricing of the Treasury markets, and that has been primarily weighing on gold."

But gold's strong performance at the end of the week showed that the game is far from over for the yellow metal as renewed stagflation fears and a new technical outlook are looking quite promising for the yellow metal.

"Stagflation is a theme that has been increasing on our collective minds," Ghali said. "The fact that gold managed to rally despite falling below $1,750 changed the technical outlook. From that perspective, we could see higher gold prices. The $1,750 level is now support, and $1,800 is resistance."

Gold is ending the turbulent week with a bullish bias, said Walsh Trading co-director Sean Lusk.

"The U.S. dollar is taking a breather, bond yields are coming back down. There is going to be another inflationary vibe. There are a lot of supply chain issues." Lusk told Kitco News. "As we get into the fourth quarter of the year, we'll get a new round of data and a new round of earning results."

And even though gold seems to lack its safe-haven allure at the moment, higher energy prices could bring it back. "Over time, if the energy market continues to chug higher, in some shape or form, it will drag gold prices higher along with it," Lusk said.

From a technical perspective, the $1,730 an ounce area remains a popular one to buy, according to the Walsh Trading co-director. "You see where the buying interest comes in and where selling dries up. It’s $40 range from $1,690 to $1,730. Should we get a close below $1,690, it could knock gold down an additional 5%," he said.

On the upper range, gold will want to climb back to $1,830. "I'm watching the dollar and equities for direction. Gold needs to get out of the downtrend and to take out $1,835 and stay above it. What will precipitate that? Could be energy prices reaching over $80 or general uncertainties about the virus," Lusk added.

On next week's radar is also the continuation of the heated debt ceiling debate. Even though the U.S. government avoided a partial federal shutdown on Thursday when the Senate and House passed a bill to keep the government funded through December 3, the October 18 default deadline is still weighing on the markets.

U.S. Treasury Secretary Janet Yellen testified this week: "If the debt ceiling is not raised, there would be a financial crisis, a calamity. It would undermine confidence in the dollar as a reserve currency … It would be a wound of enormous proportions."

Despite these fears, the impact on gold is unlikely to be significant, noted Ghali, adding that the issue will most likely be resolved. "I don't believe the market is really pricing in these risks. While the impact of a default would be massive, the likelihood of that is too small," he said.

Data to watch

Next week, the biggest data release will be the U.S. employment report from September, with market consensus projections calling for 460,000 new positions and a 5.1% unemployment rate.

"At his testimony to Congress earlier in the week, Federal Reserve Chair Jerome Powell said conditions 'have all but met' the test for QE tapering with this coming week's jobs report set to confirm it … With Covid cases falling away sharply, we expect September to have seen a re-acceleration to the 450-500,000 range," said ING chief international economic James Knightley. "A tapering announcement at the November 3rd FOMC meeting is our base case."

Other data to be released include factory orders on Monday, ISM non-manufacturing PMI on Tuesday, ADP nonfarm employment on Wednesday, jobless claims on Thursday, and building permits on Friday.

By Anna Golubova

For Kitco News

Buy and Sell Gold and Silver with Free Storage

David

Gold is a green hedge -Â it can improve a portfolio’s carbon profile – World Gold Council

Gold is a green hedge – it can improve a portfolio's carbon profile – World Gold Council

Gold can play many different roles in an investment portfolio; it is an important diversification tool and hedge against inflation. According to the latest research from the World Gold Council (WGC), gold can improve a portfolio's carbon footprint, too.

In an interview with Kitco News, John Mulligan, climate change lead and market relations at the WGC, said that the latest report on gold's environmental footprint is the culmination of four years of research that has quantified the gold market's carbon footprint and its role it can play in a portfolio where investors recognize the growing importance of Environment and Social Governance (ESG).

Mulligan explained that with EGS playing a growing role in investment decisions, the WGC wanted to show investors how the precious metal can meet these new demand trends.

"If you can't measure an asset's impact on climate change, then investors are not going to hold it. We can now show that gold can have a positive impact on the carbon profile of your portfolio," he said. "If you think about gold's traditional role as a risk mitigation asset, well, the risk spectrum is now expanded."

Mulligan noted that the WGC's research shows that once gold is mined and refined, as an asset, it actually has a low carbon profile. Aside from the extraction phase, gold bullion and gold-backed exchange-traded products do not use a lot of energy, he said.

According to the WGC's research, in a traditional portfolio with 70% exposure to equities and 30% exposure to bonds, a 10% gold allocation would reduce the portfolio's emission intensity by 7%. Holding a 20% allocation in gold lowered it by 17%.

The WGC's research also shows that gold can also lower a portfolio's temperature rating. Mulligan explained that a new ESG measurement looks at how allocations can influence rising global temperatures.

WGC noted that a 50% allocation to gold could reduce a portfolio's temperature rating by more than one full degree. Holding 10% of your portfolio in gold would reduce the temperature rating by 7% or 0.21 degrees.

One final area the WGC looked at was gold's role as a hedge against rising carbon prices. Similar to its role as an inflation hedge, Mulligan said that gold also does well as a hedge against the potential for increasing carbon taxes and fees.

Mulligan added that gold's ability to improve a portfolio's environmental standing is expected to improve as more gold producers embrace alternative green energy.

According to the WGC, most of the carbon emission generated in the gold market comes from the mining sector as extracting gold can be energy-intensive. In the past, most of that energy was generated from fossil fuels burned to run generators. However, companies are making a concerted effort to reduce their dependence on coal and diesel and use more renewable energy, including hydroelectricity and solar panels.

"Gold production can be fairly energy-intensive, but as soon as you have clean electricity, you can be fairly energy-intensive and still not have a carbon impact. That is important in terms of real economy impacts," said Mulligan.

Mulligan added that the WGC expects the mining sector's push for new green energy will be a long-term trend. He said that because of rising energy prices, there are now financial reasons for mining companies to look at alternative green energy sources.

By Neils Christensen

For Kitco News

Buy and Sell Gold and Silver with Free Storage

David