The Fed's use of data-dependent decisions can't be applicable only when it supports their beliefs

Considering that as recently as June we had the highest level of inflation recorded in the last 40 years today’s CPI report from December was a welcome change as inflation continues to slowly dissipate. Just six months ago overall inflation peaked at an alarming 9.1%. The historical rise in inflation was a long process after coming in at 0.329% in April and 0.118% in May 2020.

Initially, inflation was slow to rise with inflation concluding in December 2020 at 0.812. It was January 2020 that had the highest monthly level of inflation of 2.487%. Still the average level of inflation that year was 1.234%. An action by the Federal Reserve was logical in that inflation was running substantially below its 2% target.

In 2021 inflation concluded with an annual average of inflation at 4.698%. In March of that year, inflation had breached the 2% target set by the Federal Reserve by 0.62% and began to steadily climb higher with almost each following consecutive month coming in hotter than the previous month. Inflation rose past 4% in April, close to 5% in May, and finished the year at an alarming level of 7.036%.

Yet the Federal Reserve did nothing maintaining the belief that the recent jump in inflation was transitory and as such would dissipate without any influence by the Federal Reserve. It was this incorrect assumption that resulted in a level of inflation add speak that had not been witnessed in 40 years. In January 2022 levels of inflation continue to elevate higher beginning at 7.48% in January and peeking just above 9% in June. Still, the Federal Reserve continued to falsely believe that a 40-year high and inflation would dissipate on its own. One of the greatest errors by the Federal Reserve in recent history in both their forward guidance and projections that resulted in the most inappropriate action possible is to do nothing as inflation continues to spiral.

I believe that the Federal Reserve is once again creating one of the greatest errors by the Federal Reserve in recent history. It wasn’t that long ago that the Federal Reserve when asked about their forward guidance would quickly refer to their goto response: our actions will be data dependent and determine our forward guidance to shape our decisions in regards to our monetary policy.

Since June when inflationary pressures peaked at 9.1% we have seen inflationary levels have a methodically consistent and consecutive decline reducing inflation by approximately one-third. While we still have a ways to go to reach the fed’s 2% target, it is evident that the recent action of the Federal Reserve has accomplished its intent and effectively lowered inflation. However, it has been an overwhelming consensus by Federal Reserve members that they will continue to keep interest rates elevated and possibly even implement another rate hike to reach their goal of just over 5.

Will the FED make a blunder by not following the data

Will the FED make a blunder by not following the data which reveals its time to slowly reduce rates? It seems obvious to this author that the Federal Reserve did not learn anything from its incredible mistake of waiting too long to raise rates because of its false narrative that inflation was temporary, not persistent. Now they are making another tremendous mistake disregarding the data as they used to believe that the best forward guidance they can offer is to maintain elevated rates when what is needed is rate stabilization and reduction during 2023. Members of the Federal Reserve are assumed to be experts in their field and to disregard the data is a tremendous blunder in judgment.

The doctrine of being data-dependent when it fits assumptions right or wrong and abandoning that technique when they’re convinced again that they are right is a mistake. Members of the Federal Reserve should know better.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Nouriel Roubini says gold may be your best protection as the mother of all debt bombs & nine other megathreats are looming

 

Ten “megathreats” are hurtling towards the world including war, debt crises, and a demographic “time bomb” will make investors flock to gold, hence causing the yellow metal’s price to rise to $3k by 2028, according to Nouriel Roubini, CEO of Roubini Macro Associates and Professor Emeritus at NYU Stern School of Business.

“Over the next few years, I would expect that gold could have high single-digits into low double-digits rates of return,” he said. “I expect… rates of return around 10 percent per year over the next five years.”

Inflation, stagflation and a trend towards ‘de-dollarization’ will be the main drivers.

“If the rivals of the U.S. have to diversify away from dollar assets because we weaponize the dollar and sanctions can be imposed, then the only international reserve asset that cannot be seized by the U.S. and the West is not the dollar, Euro, yen, or pound,” he said. “It can only be gold.”

He forecast gold to rise by 10 percent per year over five years, resulting in a gold price of over $3,000 per ounce, an overall return of 60 percent.

Roubini, also known as ‘Dr. Doom’ for his grim economic forecasts and for correctly predicting the 2008 financial crisis before it occurred, said that a “stagflationary depression” could begin in 2023, which would cause both stocks and bonds to decline.

“If I am right, that we will have a hard landing, that inflation is going to be persistent, and that central banks are in a dilemma, [then] both equities and bonds will do poorly,” he predicted. “Gold should do better because… it is a hedge against inflation. It is also a hedge against financial instability, and a hedge against social, political, and geopolitical stability.”

Roubini spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News.

Geopolitical threats

Roubini said that “revisionist powers” like China, Russia, Iran, and North Korea would challenge the U.S. and Europe for world dominance in the years to come.

He singled out Taiwan, a U.S. ally, as an example. Echoing U.S. navy chief Michael Gilday, he warned that China could attack Taiwan as soon as 2023, causing further tensions between China and the U.S.

“[China’s President] Xi came to power for a third term not because he wants to reform China, but because he wants to pass into history as the president that united mainland China with Taiwan,” Roubini claimed. “Recently, Biden has made statements that if China were either to invade Taiwan, or even impose a naval blockade, the U.S. will directly intervene in that conflict.”

He warned that such a conflict would escalate into a “fully nuclear war between the U.S. and China,” and if the United States were to renege on its commitment to Taiwan, it would lose credibility as a military ally.

“If you lose Taiwan, your credibility of committing to defend your allies like South Korea, Japan, Australia and others in Asia is going to fall,” he observed. “That is why Taiwan is important, not because of Taiwan, but because of the consequences on the hegemonic power of the U.S. in Asia.”

Fed tightening likely to pause

The Federal Reserve raised interest rates by 425 basis points last year in an effort to tame inflation, which reached a peak of 9.1 percent in June 2022.

Roubini said that the Fed would need to raise rates to at least 6 percent, but is unlikely to do so, given that this would cause a “severe” recession and debt implosions. He suggested that the Fed would pivot or pause its tightening cycle.

“You need to raise interest rates at least to six percent in order to push, over time, inflation towards two [percent], but interest rates at six percent are going to led to severe economic contraction,” he observed. “It is going to lead to even more credit distress…. There is so much debt in the system that an attempt to reduce inflation not only causes an economic crash, it causes also a financial crisis. They will feed on each other, and faced with an economic and financial crash, the Fed and other central banks are going to have to wimp out, blink, and not raise interest rates as much.”

However, Roubini said that this monetary policy response would then cause a “de-anchoring of inflation expectations,” leading to inflation of “at least” 5 to 6 percent over the medium term.

“We have inability in the public sector to increase taxes or cut government spending,” he said. “The temptation is going to be to wipe out the real value of long-duration government debt at fixed interest rates, but you can also wipe out the nominal value of private debt through a bout of unexpected inflation. That has already happened last year, and it is going to continue to happen. We’re going to use the inflation tax to deal with excessive amounts of private and public debt.”

Megathreats

In his new book, Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them, Roubini identifies debt crises, deglobalization, a demographic time bomb, climate catastrophes, Artificial Intelligence and other factors as “megathreats” which imperil all of humanity, and could lead to a “dystopia.”

A key theme in the book is that fixing one problem can make another one worse. For example, Roubini writes that to fix climate change, massive investments in green energy are required, but such investments would require a reduction in people’s standard of living.

“The economic cycles and the financial cycles, the boom bubbles busting and crashing, are becoming more severe and more frequent for a number of reasons, including toxic leverage of the economy and financial system,” he said. “It’s a very different world from the one I grew up in with these megathreats, which I didn’t even hear about while I was growing up. Now each one of them is a material threat to our prosperity, to peace, and to progress.”

To find out which other investments are likely to withstand Roubini’s ‘megathreats,’ watch the video above

Follow Michelle Makori on Twitter: @MichelleMakori

Follow Kitco News on Twitter: @KitcoNewsNOW

By Cornelius Christian

For Kitco News

Time to Buy Gold and Silver

David

Gold closes at its highest value this year, although traders bid it lower

Gold futures and spot pricing closed moderately higher today. However, traders and investors bid the precious yellow metal lower with dollar weakness accounting for all of today's gains. As of 4:40 PM EST gold futures basis, the most active February contract is currently up $5.80 or 0.32% and fixed at $1875.60. Concurrently, the dollar is trading 0.68% lower on the day with the dollar index currently fixed at 102.945. Simply comparing the percentage gain in gold (+0.32%) against the percentage decline in the dollar (-0.68%) reveals that there was selling pressure in gold futures today.

The same is true for spot or physical gold. According to the KGX, (Kitco Gold Index) spot gold is currently fixed at $1870.80 after factoring in today's gain of $5.10. However on closer inspection dollar weakness resulted in gains of $12.90 per ounce, and selling pressure took gold lower by $7.80 resulting in today's moderate gain.

A case can be made for the selling pressure in gold on a fundamental and technical basis. Reuters News reported a comment made by Mary Daily the president of the San Francisco Federal Reserve Bank who said, "The Fed should try to bring inflation down "as gently as we can," but it also "absolutely" needs to make sure high inflation does not become embedded."

This suggested that the Fed might raise rates by 50- bps, rather than 25 bps which was the anticipated rate hike that the Federal Reserve would enact at the next FOMC meeting (January 31 – February 1). During a webcast interview with the Wall Street Journal daily she left open that possibility. "I can give you arguments for either side."

She confirmed the current outlook by the Federal Reserve that ultimately interest rates need to go to between 5.00% and 5.25% and remain there to bring inflation to the Federal Reserve's target of 2%.

Traders and investors are viewing the potential for a 50-bps hike as reflected by the selling pressure in both gold futures and spot pricing. However, according to the CME's FedWatch tool, there is a 79.2% probability that the Federal Reserve will raise rates by ¼% and a 20.8% probability that they will raise rates more aggressively by 50 bps.

Market participants will look at the December reading of the CPI (Consumer Price Index) this Thursday to gain more insight into the Federal Reserve's 2023 monetary policy.

Technical studies also suggest that gold prices could correct

Today gold futures traded to an intraday high of $1886 before settling approximately $10 lower at the time of this writing. Our technical studies indicate that gold futures could find potential resistance at $1881 which is based upon a top that occurred at the end of June 2022. Gold futures did trade above that price point but closed below it suggesting possible resistance at the top created in June.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold price surges back to 6-month highs on mixed U.S. data, focus shifts to inflation next week

The latest macro data out of the U.S. pushed gold back to six-month highs after the U.S. economy and employment showed signs of cooling.

The gold market was at one point just $25 away from its key $1,900 an ounce level on Friday, with February Comex gold last at $1,873.40, up 2.4% on the week.

The biggest macro event of the week showed that the U.S. job growth slowed modestly in December, with U.S. nonfarm payrolls rising by 223,000 last month. The November data was revised down to 256,000 positions added.

One of the gold-positive drivers from the report was wage pressures coming down, which is a sign that inflation is cooling. Year-over-year average hourly earnings rose 4.6% last month. This was below markets' expectations of 5% and followed November's downwardly revised gain of 4.8%.

"Overall [the report] showed an economy slowly moderating with inflation coming down and labor market still strong. There is simply nothing recessionary about this report, but it was also a mixed report that had something for everyone," said MKS PAMP's head of metals strategy Nicky Shiels.

Also, the U.S. service sector contracted for the first time in 30 months in December, with the Services Purchasing Managers Index (PMI) reading coming in at 49.6%. The 6.9 percentage-point decline surprised to the downside as market consensus calls were looking for the index to come in at 55%.

"While recent tracking suggests that GDP growth held up much better than expected in Q4 last year, this decline in the ISM services will raise concerns that the economy was losing momentum quickly and could have started 2023 on a soft footing," said CIBC Capital Markets senior economist Andrew Grantham.

Gold surged in response to both data releases, hitting a daily high of $1,875.20 — the highest level since June. "Gold knee-jerked higher," said Shiels. "The steep declines in business activity and orders that, if sustained, creates concerns about the demand outlook."
 

Next week's performance is key

What gold does next will be vital in determining whether the precious metal can sustain its rally, Shiels added.

"Depending on whether gold can hold its weekly gains (which is looking increasingly likely), it solidifies the offensive way gold has been trading since it established a mild bull trend since early November – always looking for reasons to rally," she said Friday. "There's a decent amount of bullish 'pent-up' demand that has been rolled over from last year and can get ignited on the right data point (CPI & PCE) will be far more telling," Shiels said.

Gold began to show signs of a bullish pattern in the fourth quarter of 2022 on expectations of a pivot by the Federal Reserve.

The next target that gold needs to breach is around $1,896.50, which is the 61.8% retracement of the losses since last March's peak near $2,070, Bannockburn Global Forex managing director Marc Chandler told Kitco News.

"I am not convinced it makes it up there as momentum indicators are getting stretched, and I think the risk is greater than the around 1-in-3 chance that the Fed funds futures are pricing in of a 50 bp hike at the FOMC meeting that concludes on Feb 1," Chandler stated. "That said, as long as the yellow metal holds above the $1,825-$1,830 area, the upside looks favored."

After Friday's data, markets started to price in a 74.2% chance of a 25-basis-point rate hike in February, according to the CME's FedWatch Tool.

Gold has been anticipating and pricing in a slowdown in rate hikes by the Fed, but the ETF investors still need some convincing before the rally can really kick off, said Commerzbank analyst Barbara Lambrecht.

"Its upswing is presumably due primarily to more optimism among speculative financial investors, who are generally more fickle," Lambrecht wrote Friday. "However, any lasting recovery of prices on the gold market will require, above all, a shift in sentiment among ETF investors, who are still exercising caution. They appear to be waiting for the U.S. rate hike cycle to come to an end. In the short term, we envisage, if anything, a risk of setbacks on the gold market."
 

Data to watch

Inflation is one of the key reports that gold will pay close attention to next week, especially after the Fed minutes from the December meeting showed that U.S. central bank officials feel that more work needs to be done to battle price pressures.

"Federal Reserve officials remain concerned that policy needs to be more restrictive and to stay restrictive for a long period of time to ensure that demand moves into balance with the economy's supply capacity and price pressures subside," said ING chief international economist James Knightley.

Market consensus calls are looking for the annual inflation number to slow to 6.5% in December from November's 7.1% print.

Tuesday: Fed Chair Jerome Powell speaks on 'Central Bank Independence'

Thursday: CPI, U.S. jobless claims

Friday: Michigan consumer sentiment

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

David

Gold moves lower temporally halting rally on Fed clarifications of inflation concerns

Breaking four consecutive days of gains, gold prices declined today by $20 as market participants reacted to data revealing that the U.S. labor market is tighter than previously perceived. A tight labor market raises the expectations that the Federal Reserve will maintain the elevated interest rates for a longer period. The expectations that the Fed will continue its extremely hawkish monetary policy throughout the entire calendar year have diminished the hope of easing by the Federal Reserve.

The vast majority of gold’s price decline today was directly attributable to dollar strength. The U.S. dollar index is currently up 0.85% and fixed at 104.91. Considering that gold is trading 1.11% lower indicates mild selling pressure combined with dollar strength led to gold’s first daily price decline this year.

Minutes released by the Fed earlier this week cemented sentiment by Federal Reserve officials who unanimously agreed that the central bank should slow the pace of rate hikes while maintaining the current elevated level. While there is very little hope that the Federal Reserve will reduce rates according to the minute's released rate hikes should be limited to their upper target of approximately 5.1% vis-à-vis its benchmark Fed funds rate.

As of 4:15 PM EST gold futures basis the most active February contract is currently fixed at $1838.50 after factoring in today’s decline of 1.10.%. Silver futures sustained a deeper decline giving up 2.48% with the most active March contract currently fixed at $23.37.

Price levels for gold

he two most recent tops occur at $1823 (August 2022) and $1791 (November 2022) which continue to be technical levels of support. Noteworthy is the fact that the support trendline covering recent lows from November to current pricing remains intact.

Major resistance still occurs at $1881.50 which is based on two tops that occurred in mid-November and mid-June 2022. However, yesterday’s intraday high of $1870 now becomes the next level of resistance for gold to take out.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Gold continues 2023 rally amidst minutes revealing Fed remains hawkish

This afternoon the Federal Reserve released the minutes from last month’s FOMC meeting. Unanimously Fed officials agreed that the central bank should slow the pace of its aggressive rate hikes. This would allow them to continue to ratchet up the cost of credit to curb inflation. They continue to be worried that market participants have an inaccurate perception of hoping for rate cuts this year. However, they left the door open to tightening even more aggressively if inflation rises.

"Most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance."

Most importantly they continued their stern doctrine to raise interest rates to just over 5% by the end of this year. "No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023,"

Gold prices maintained the morning gains following the release of last month’s FOMC meeting minutes at 2:00 PM EST. Gold futures opened today at $1845.20 and traded to an intraday high of $1871.30. As of 2:45 PM EST, the most active February 2023 contract is fixed at $1857.40 after factoring in today’s price gain of $11.60.

Silver futures basis the most active March contract opened at $24.17, traded to a low of $23.745, and is currently fixed at $23.92 after factoring in today’s $0.316 decline.

Levels to watch in gold futures for Q1 2023

It is a fact that market sentiment for gold had a major price reversal from exceedingly bearish to bullish beginning in November 2022. Our technical studies indicate that the current level of major support is $1831. This support is based on yesterday’s low. Resistance occurs at $1881.50, based on two tops that occurred in mid-November and mid-June 2022.

By Gary Wagner

Contributing to kitco.com

Time to Buy Gold and Silver

David

Steady-weak price action in gold, silver as 2022 winds down

Gold and silver prices are not straying too far from unchanged levels in quieter early U.S. trading Friday. Many traders are on holiday this week, making for lighter trading volumes and thin conditions. Traders will hit the exit doors early today, ahead of the three-day New Year holiday weekend. February gold was last down $2.40 at $1,823.60 and March silver was down $0.21 at $24.035.

Global stock markets were mixed to weaker overnight. U.S. stock indexes are pointed toward slightly lower openings when the New York day session begins. The marketplace is quieter this week following the Christmas holiday and just ahead of the new year

The marketplace in the new year will continue to closely monitor China’s battle with Covid. Broker SP Angel this morning reports in an email dispatch:

“Chinese Covid rates are going to have a substantial impact on the ability of factories to produce, transporters to deliver, builders to build, and on finance companies to finance. This could stall the Chinese economy for a few months, though we suspect China’s authorities will do their best to keep the wheels on. The authorities are already telling Covid-positive people to go to work, a policy which is likely to spread the infection faster than in any other nation. The narrative seems to be that Omicron is milder than Delta and presents a lesser risk to nation. China is also asking families to sign Cremation forms saying: “I guarantee that the deceased XXX did not die of #COVID, and I will be fully responsible for any false claim.” (The Telegraph). Chinese covid deaths have risen to 9,000 a day, around double last week’s mortality rate, according to U.K. research firm Airfinity, the world's first dedicated COVID-19 health analytics and intelligence platform. (Reuters). Airfinity also reckons cumulative deaths reached 100,000 over the past 30 days with some 18.6 million infections using modelling based on data from Chinese provinces before recent changes on reporting cases. The research group expects China's Covid infections to reach their first peak on Jan. 13 with 3.7 million cases a day and for Covid deaths to peak on Jan. 23 around 25,000 a day with cumulative deaths reaching 1.7 million by end-April. China has officially reported just 10 COVID deaths since 7th December.”

With the lack of fresh, major business news this week, let’s look at some news headlines Friday morning from the Dow Jones Newswire.

“This was a terrible year for stocks; next year could surprise—positively”

“China’s Covid easing and policy pivots brighten outlook for stocks”

“Small businesses find some relief from hiring woes”

“Copper set for first annual decline in four years”

“What a crazy year: a bear market (stocks), oil’s pop, and those bond yields”

“Higher rates threaten U.S. renovation boom”

“(U.S.) mortgage rates log biggest yearly rise”

“Dollar rally loses some steam”

“Crypto went 12 rounds with Mike Tyson in 2022; now, Bitcoin whales are buying”

The key outside markets today see the U.S. dollar index weaker. Nymex crude oil prices are slightly lower and trading around $78.75 a barrel. Meantime, the yield on the benchmark U.S. 10-year Treasury note is presently 3.854%.

U.S. economic data due for release Friday is light and includes the Chicago ISM business survey.

Technically, the gold futures bulls have the firm overall near-term technical advantage. Prices are in a seven-week-old uptrend on the daily bar chart. Bulls’ next upside price objective is to produce a close in February futures above solid resistance at $1,900.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,775.00. First resistance is seen at $1,836.90 and then at this week’s high of $1,841.90. First support is seen at the overnight low of $1,819.80 and then at Thursday’s low of $1,811.20. Wyckoff's Market Rating: 7.0.

The silver bulls have the solid overall near-term technical advantage. A choppy, four-month-old uptrend is in place on the daily bar chart. Silver bulls' next upside price objective is closing March futures prices above solid technical resistance at $25.00. The next downside price objective for the bears is closing prices below solid support at $22.00. First resistance is seen at the December high of $24.525 and then at $25.00. Next support is seen at this week’s low of $23.645 and then at $23.00. Wyckoff's Market Rating: 7.5.

By Jim Wyckoff

For Kitco News

Time to Buy Gold and Silver

David