Precious metals news

Since last fall, gold prices have shown a significant rebound. Commerzbank's economists have shared their predictions on the trajectory of this precious metal. In the near term, gold prices are expected to hover around $1,950, due to ongoing uncertainty about the direction of U.S. monetary policy. While declining U.S. inflation could bring an end to interest rate increases, the persistent strength of the U.S. economy suggests a rapid shift in interest rates is unlikely. However, the outlook for the medium term suggests an uptick in gold prices. Given the anticipation of a U.S. economic downturn, speculation about potential interest rate reductions should support a rise in gold prices.

The U.S. fiscal health is worsening with a Federal Deficit run rate of $2.25 trillion. High interest costs, driven by rate hikes, contribute significantly to this deficit. The short-term bond market, a primary source for government debt, is under pressure with $9 trillion of notes maturing in 2023 and 2024. The persistent rise in Federal Deficit and declining foreign investment in U.S. bonds accentuate the issue. The central concern is escalating debt.

The "excess savings" accumulated by American consumers during the COVID pandemic are rapidly depleting. These funds, a result of substantial government support, peaked at $2.1 trillion in August 2021, but have dwindled to around $500 billion by spring 2023. This trend could hinder the U.S. economy's potential for a soft landing amidst the ongoing fight against inflation by the Federal Reserve. The rapid drawdown indicates a more substantial role of these dollars in boosting demand in the U.S. economy over the past year compared to other advanced economies.

In this week’s Nuggets, we bring you key updates on the U.S. national debt, government spending, potential threats to the dollar, and more.

The stock market's disconnect from the economy is a worrying trend. Despite a near-depressionary economy, equities saw a surge due to monetary and fiscal interventions. This created an illusion of economic growth, buoyed by investors willing to overlook economic realities. However, this 'bull market' cannot last indefinitely as the mean-reverting nature of profit margins and economic health asserts itself. The stock market has overreached, detached from the fundamentals of corporate profitability and economic strength. When the mean-reversion process inevitably occurs, the fall will be sharp and painful, revealing the true state of the economy and likely leading to disappointing returns for investors.

Apple Inc. has reported its third consecutive quarter of falling sales, predicting similar outcomes for the current period due to a widespread slump affecting demand for phones, computers, and tablets. This could lead to the longest streak of declines in twenty years for the world's most valuable company. Apple shares dipped, risking the loss of its historic $3 trillion valuation. The challenging environment is due to rising interest rates and inflation

The U.S., the globe's most advantaged nation, consistently escapes repercussions for incompetence or misdeeds. This impunity allows politicians to recklessly toy with national finances, amassing dangerous debt. Financial markets, shielded by the dollar's status as a global reserve currency, facilitate this behavior. This privilege, alongside the Fed's unprecedented power, permits deplorable mismanagement by U.S. fiscal authorities, unthinkable in the corporate world. They frequently risk default by resisting additional borrowing, a dereliction underlined by Fitch.

The US government is set to borrow $1.007 trillion in Q3, a considerable rise from the previous estimate of $733 billion, due to increasing fiscal deficit and dwindling cash reserves. The federal deficit has surged by 170% to $1.39 trillion in the nine months through June. Spending outstripped income, with $4.80 trillion spent against $3.413 trillion in generated revenues. The US pays 2.76% interest on its debt, the highest in over 11 years. Despite these, Fitch retains the US's AAA rating, but places it on negative watch due to fiscal and debt trajectories.

Under the Federal Reserve's watch since 1913, US inflation has skyrocketed to an extraordinary 3,000% as of June 2023. This is a stark contrast to the era before the Federal Reserve, when the dollar's purchasing power was tied to the supply and demand of gold, resulting in a notably stable purchasing power for over 130 years. Regardless of the measures used, the rise in the US price level under the Fed's management has been substantial and unparalleled, signifying a departure from the gold standard stability of the past.

The ECB, led by Christine Lagarde, is currently struggling with a credibility issue. While Fed Chair Jerome Powell needed almost a year to convince markets of his seriousness about rate hikes. Lagarde has tried to impose her intentions onto the market, resulting in policy inconsistencies. The ECB's Transmission Protection Instrument (TPI), designed to manage German/Italian credit spreads, has not been enough to stabilize the situation. In short, both the US and ECB are dealing with economic uncertainties due to their conflicting monetary policies.

The July jobs report displayed disappointing numbers with a payroll increase of only 187K, missing the expected 200K, marking the second consecutive miss in nearly two years. Both May and June figures were revised lower, continuing a trend of monthly payrolls for 2023 being downwardly adjusted. The unemployment rate's unexpected drop to 3.5% from 3.6% confounds the Fed's year-end 4% unemployment rate expectation.The wage numbers also present a mixed picture, with average hourly earnings coming in hotter than expected, but creating more confusion for policy decisions.

The US's credit downgrade by Fitch Ratings, following a similar move by S&P in 2011, leaves it behind countries like Germany, Denmark, Netherlands, Sweden, Norway, Switzerland, Luxembourg, Singapore, and Australia that maintain top-tier credit ratings. The cut reflects anticipated fiscal degradation and escalating government debt due to consistent debt-limit conflicts. Although Moody's is the only major rating company still holding the US at top-tier, the downgrade exposes the over-reliance on US securities globally, potentially prompting a shift towards other countries' assets.

In this special episode of the Friday Gold Wrap podcast, host Mike Maharrey answers listeners' questions. He covers topics including the precious metals markets, investment strategies, the trajectory of the economy, the future of the US dollar, central bank digital currencies (CBDCs), and more.

Australia's silver production took a major hit in the first quarter of 2023, falling 21% compared to the previous period.  While wet weather may be partially the cause for the decline, Australia's silver production has been falling considerably over the past 10-15 years...

Over 40 nations under the BRICS+ coalition are discussing the feasibility of a gold-based financial institution at their Johannesburg meeting, symbolizing a slow global shift away from U.S. dollar dependency. This "de-dollarization" doesn't spell doom for the U.S. dollar but rather emphasizes the need for alternative currencies in critical situations. This trend coupled with growing investments in gold sectors globally, central banks buying gold at record rates, and emerging gold-based systems indicate a gradual re-monetization of gold that may influence global central bank reforms.

According to the Congressional Budget Office, the climbing national debt is projected to seriously hinder income growth in the US, reducing it by up to 69% and average income by 25% by 2053. This "crowding out" effect would detract from more productive investments. Policymakers are thus advised to work towards slowing the debt's growth to preserve economic stability and the standard of living.

For decades, the US has been witnessing a worrying decline of industrial and manufacturing jobs, with corporations offshoring roles for cheaper labor. Despite economists' promises, better jobs for displaced workers haven't materialized, exacerbating economic decline. The longstanding status of the US dollar as a reserve currency is at risk due to Washington's policies, raising inflation risks and threatening reduced living standards. A one-party rule are undermining US power and foundational principles, setting the stage for potential economic decline.

Despite low unemployment rates and increased private sector net worth in recent years, governments worldwide have plunged deeper into debt due to significant budget deficits and aggressive bond buying by central banks. Investor Ray Dalio predicts a near-term future of mild stagflation—slow growth and high inflation. He warns of a self-reinforcing debt spiral in the long term, as governments will have to sell more debt to cover increasing deficits and debt service costs, leading to market-imposed debt limits and further monetary easing by central banks, exacerbating their balance sheet issues.

U.S. service sector indicators fell in July, raising concerns of a slowdown. ISM Services dropped to a six-month low, and PMI Services also decreased. Rising living costs, higher interest rates, and decreased domestic demand are causing businesses to pull back on hiring. Coupled with stubbornly high inflation and increased wages, this downturn signals a risk of stagflation in the U.S. economy.

Prominent billionaire investor William Ackman warned of increasing risks in the U.S. economy as he revealed his hedge fund's significant short position on U.S. 30-year Treasuries. He views this as a necessary protection against potential spikes in long-term rates that could harm the stock market. He fears a potential surge in 30-year Treasury yield to 5.5% in the near future, given the 4.16% climb on Wednesday - the highest of the year. Ackman points to escalating defense costs, energy transitions, and increasing labor power as factors fueling inflation, despite the Fed's aggressive rate hikes.