Precious metals news

Gold prices rose 6% recently, influenced by the Israel-Hamas conflict. However, ANZ Bank points to other driving factors: 1. **Fed Rate Cycle's End:** As the Fed's interest rate cycle concludes, declining US yields will make gold more attractive. 2. **US Dollar Outlook:** Despite short-term USD strength, ANZ predicts a bearish trend for the USD into 2024, supporting gold prices. 3. **Central Bank Purchases:** Continued buying from central banks will bolster gold prices. 4. **Seasonal Demand:** Q4 usually sees increased demand for physical gold. In essence, while geopolitical events can sway gold prices short-term, various elements support a longer-term upward trend.

Record debts and high interest rates in major economies are escalating fears of a looming financial crisis. The US is heading towards an unmanageable debt situation, potentially being unable to service its own interest. Political instability, wars, and ill-advised economic stimulations further exacerbate the problem. This debt not only impacts national stability but also inflates personal costs due to increased competition for credit. The rising debt and inflation threaten to cripple the nation, resulting in a sovereign-debt crisis. The situation promises significant turmoil in financial markets.

Russian President Vladimir Putin visited Beijing amidst the Ukraine conflict, highlighting the deepening Russia-China alliance. This is Putin's second international trip since the ICC issued an arrest warrant for him. Neither China nor Kyrgyzstan, Putin's earlier destination, are ICC members. Despite Western criticism, Beijing continues to support its partnership with Russia. Putin's presence at the Belt and Road Forum emphasizes their growing economic ties, especially in energy, though no new deals are expected during this visit.

The Congressional Budget Office (CBO) reported a $1.7 trillion US budget deficit for the 2023 fiscal year, up $300 billion from 2022. While government spending hit $6.131 trillion, revenues were only $4.441 trillion. Amid this rising deficit, the IMF's director, Pierre-Olivier Gourinchas, expressed concerns at the 2023 World Economic Outlook, urging the US to reconsider its fiscal strategies in light of prevailing inflation and high interest rates.

China is pushing state banks to extend local government debt amid growing concerns over economic instability. Local debt rose to 76% of the GDP in 2022, highlighting financial risks intensified by a property crisis and pandemic fallout. This move may challenge bank operations and inadvertently increase financial recklessness. The property sector's decline and significant upcoming debt maturities further amplify these concerns.

Global debt rose $10 trillion to a record $397 trillion in the first half of 2023, according to the Institute of International Finance (IIF).
The big increase in debt occurred despite tightening credit conditions, and it is an increasingly worrisome problem because the "free lunch" of artificially low interest rates is over.

US yields have been erratic due to mixed Fed signals and geopolitical tensions, adding to uncertainties about the Federal Reserve's policy stability. As bond markets face headwinds, concerns about the future buyer base for US government debt rise. With the Fed reversing its bond-buying stance and foreign buyers showing hesitancy, the bond market's resilience is under threat. The financial outlook is increasingly unstable, emphasizing the fragility of major financial systems.

Despite reports of plunges in credit card spending from Citi and Barclays, and a huge downward revision in US consumption (per GDP) U.S. retail sales surpassed expectations, rising by 0.7% MoM compared to the anticipated 0.3%. This significant uptick marks a six-month growth streak, leading to a 3.8% YoY increase, the highest since February 2023. However, sectors like Building Materials, Appliances, and Furniture experienced sales declines, suggesting potential headwinds for the housing market. Observers recommend caution for the upcoming month of October.

After the CPI data came out last week, gold rallied. On his podcast, Peter Schiff talked about the rally and the trajectory of gold. He said we can expect even bigger moves up when the markets figure out the inflation problem isn't solved.

Today, Newcrest came out with its preliminary report for Q3 2023, which wasn't pretty.  With the higher energy prices during the third quarter, I expect the gold miners' costs to increase... but how much?  Also, the EIA is forecasting a decline in U.S. Shale Oil production...

The global economic and political landscape is shifting, impacting gold flows from West to East, as "Gold goes where the money is." Eastern central banks are significant gold buyers, with 2022 witnessing a record purchase of 1,136 tons. The trend persisted in 2023, with central banks acquiring 378 tons of gold from January to June, surpassing the previous 2019 record. The most substantial purchases were made by China, Singapore, Poland, India, and the Czech Republic, highlighting the eastern tilt in gold demand.

In Q3, the LBMA Gold Price AM and Shanghai Gold Benchmark PM saw a decline of 3.7% and 2.8% respectively. Despite this, 170t of gold was shipped out of the Shanghai Gold Exchange, an increase from the previous month, in preparation for peak gold consumption season. The gold price premium between Shanghai and London reached a new record in September, averaging US$75/oz, possibly due to reduced net gold supplies. However, it decreased in October. Chinese gold ETFs experienced a rise in assets for four consecutive months, reaching RMB27bn by September's end. Additionally, the People’s Bank of China bought 26t of gold in September, making the total gold reserves 2,192t.

In a speech in Council Bluffs, the 2024 Republican presidential candidate criticized the issues with "fiat currency" and the Federal Reserve's continuous use of Quantitative Easing, especially post-2008. DeSantis emphasized that such policies favored the wealthy and harmed the middle class. While not endorsing a return to the Gold Standard, he supported auditing the Federal Reserve and prioritizing price stability. He also highlighted the negative impact of "boom-and-bust" policies on average Americans.

Many financial experts were convinced that interest rates would remain eternally low, dismissing concerns about surging government debt. Despite historical fluctuations, they saw recent low rates as the new norm. Now, with rising rates revealing the dangers of their complacency, the true costs of unchecked debt accumulation are emerging, threatening economic stability.

The FDIC revealed First Republic Bank's failure, which was then snapped up by JPMorgan Chase, arguably the riskiest U.S. bank. The acquisition deal was heavily skewed in JPMorgan's favor, with the FDIC shouldering significant future losses. Despite this acquisition, JPMorgan faced substantial deposit outflows, resorting to desperate tactics like offering unusually high-interest rates for large deposits. These moves exposed them to greater uninsured deposit risks. Following recent bank collapses, the FDIC's proposed measures to mitigate such risks could hit JPMorgan with a $3 billion expense.

Michael Barr of the Federal Reserve addressed the proposal for larger U.S. banks to maintain higher capital levels, highlighting the potential economic loss of up to $25 trillion in another crisis. Despite pushback from big banks, he emphasized the importance of capital for stability. He noted that instead of building capital, many banks have been boosting share prices through stock buybacks. Barr countered arguments that higher capital requirements would limit lending, pointing out past financial crises caused by undercapitalized banks.

The mortgage crisis is unique, with the primary problem being the mortgages themselves. While the Fed's BTFP program offers some protections, the true danger lies in commercial real estate. Many banks have heavily invested in big-city commercial loans. With the downturn in the commercial market, a cascading effect of loan losses and decreasing property values is emerging. The main threat to banks is commercial real estate, overshadowing the struggles of the residential market.

Powell faces a tightrope walk in addressing rising inflation and interest rates. Speaking soon, his comments will be closely watched for hints on the Fed's next moves. Recent swift increases in bond yields indicate the central bank's policy may be at a crucial crossroads, with analysts noting a shift from just inflation to also preventing a potential recession.

Despite Paul Krugman's assurance that inflation's grip is loosening, recent reports suggest otherwise, indicating that the flames of inflation are stubbornly persistent. Desperate to keep pace with escalating prices, consumers are increasingly leaning on credit cards, leading to a staggering 38% growth in credit usage since April 2021. Alarmingly, this surge occurs in the backdrop of steep interest rate hikes. An even more ominous sign is the rising credit card delinquency rates.

Skyrocketing mortgage rates, the highest in nearly a quarter-century, are wreaking havoc on the housing market, pushing home sales to distressingly low levels reminiscent of the subprime disaster era. Anticipated sales for 2023 suggest that previously owned homes will be moving at a glacial pace, reminiscent of the grim 2011 figures. Back then, the U.S. was grappling with the aftershocks of one of its most catastrophic housing crises. Now, despite a ballooning U.S. population, the market shows alarming signs of stagnation, a dire outlook echoed by a multitude of alarmed economists.