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With Stagflation Ahead, How Will Gold Respond?

How Will Gold Price Perform During Stagflation?

Photo by Zlaťáky.cz

Analysts think stagflation might be the boost gold needs right now

The gold market continues to experience strange action, having most recently fallen to $1,720 only to bounce back to $1,760 by Friday’s time. It was a repeat of the week before, where strong selling pressure was met with a lot of buyers.

Kitco interviewed a number of market analysts for their take on the bigger economic picture and how gold will respond. Daniel Ghali, a commodity strategist at TD Securities, told Kitco that the headwinds gold seems to be facing come primarily in the form of the markets pricing in scenarios that may or may not happen:

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. As a result of that, we’ve seen substantial repricing of the Treasury markets, and that has been primarily weighing on gold.

Even though it has been consistently pointed out that the Fed is poorly positioned for either tapering or rate hikes, the markets seem determined not to be surprised.

Ghali thinks the re-emergence of the threat of stagflation, a mixture of rising prices and a static or weakening economy, could be a wake-up call to market participants. Indeed, there seems to be little to support the idea of any kind of economic strength that would cause the Fed to act in a hawkish manner, and worries over inflation are by now ubiquitous.

Walsh Trading co-director Sean Lusk reiterated that gold ended the week with a bullish note:

…click on the above link to read the rest of the article…

Evergrande Contagion Threatens to Collapse the Everything Bubble

Evergrande Contagion Threatens Everything Bubble

Photo by Hyunwon Jang

“Evergrande, a real-estate colossus in China, is collapsing. Don’t expect the collapse to be contained to China. The global macro implications are huge.” – Mike Shedlock

The U.S. economy is staring down the barrel of a financial shotgun thanks to the Chinese real estate bubble that just popped.

The trouble started at a developer called Evergrande, which is suffering a major crisis. One Wall Street Journal article sharply summarized the company’s problems:

The party has ended. Years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the giant developer on the brink of collapse. Construction of Evergrande’s projects in many cities has stopped.

The Guardian referred to it as “China’s Lehman Brothers moment.” Of course, Lehman Brothers collapsed during the U.S.’s own 2008 financial crisis.

“The mess in China does not stop with Evergrande,” according to Mike Shedlock.

How huge? Well, we’ve seen this before in the U.S. (the Great Recession) and in Japan, where the real estate bubble of the late 1980s led to a “lost decade.” These economic events don’t respect national borders. They go global.

With that in mind, here’s how bad it might get…

China officials asked to get “ready for the possible storm”

Get ready for the possible storm ahead…

That’s exactly what the Chinese leadership warned local authorities after the Evergrande collapse became apparent. According to a Kitco report:

[Chinese] officials noted they are being asked to get “ready for the possible storm,” including all the potential economic and social consequences that could come along if Evergrande fails to meet its financial obligations.

And fail the company did, as reported by Market Rebellion in a tweet on September 23: “Evergrande reportedly missed its $83.53 million March 2022 bond payment that was due today.”

Here’s why this isn’t a “run of the mill” economic crisis for China:

…click on the above link to read the rest of the article…

The Inflation Train Isn’t Anywhere Near Full Speed

The Inflation Train Is Nowhere Near Full Speed

Public domain photo from National Park Service

Federal Reserve Chairman Powell and other members of the Fed have been using the term “transitory” to downplay the threat that the last 16 months of skyrocketing inflation would last.

But inflation has been sharply on the rise since March 2020, with only a minor pause toward the end of last year before rising even more sharply since January 2021. Two Fed officials dissented in June of this year, but Powell’s money-printing habit hasn’t slowed.

The “light at the end of the tunnel” for the Fed? A miniscule .1% (one tenth of one percent) down tick in the official monthly inflation report this August.

You can almost hear the relief in the Fed’s chatter… “See, we were right! It was only transitory inflation, and it’s already going down! There’s nothing to see here, move along, buy more stocks.”

Don’t crack open the champagne just yet.

Unfortunately for us, the Fed’s optimism seems misplaced. That 0.1% reduction in monthly official inflation leaves us with a 5.3% annual inflation rate, more than 2 1/2 times higher than the Fed’s official inflation target.

And if you think everyday folks have it rough, small businesses have taken a major hit:

Inflation for businesses reached a year-over-year rate of 8.3% — the metric’s highest level since at least 2010.

On top of that, consumers are waking up to the reality that inflation won’t be “transitory,” but instead will likely stick around for a few years.

That’s because once inflation begins to gain velocity, it’s hard to stop. Inflation has serious momentum, just like a train. A fully-loaded modern freight train weighs tens of thousands of tons and needs over a mile to make an emergency stop. A controlled, safe stop takes much longer.

That very momentum is what Jim Rickards was concerned about back in February:

…click on the above link to read the rest of the article…

These Dangers Loom Over the Fragile U.S. Economy in the Next 12 Months

The U.S. and most of the world is at the threshold of what I would call a nexus point in history. There are establishment forces at play that seek to impose a permanent authoritarian presence within our nation in the name of Covid “safety.” This includes lockdown mandates and restrictions on economic participation for the unvaccinated (including being unable to keep a job).

At the same time, only 53% of the public has been fully vaccinated against Covid. A significant number of the unvaccinated seem likely to dig in their heels and refuse to comply with the advice of medical professionals and the government.

We are at an impasse. With a global pandemic flaring up again in the background, the pro- and anti-vaccine groups square off. Those who see their Covid vaccination as a badge of personal responsibility and civic-mindedness versus those who believe the opposite. Unless one side chooses to stand down and walk away from the fight, our economic future will grow increasingly unstable.

This is the foreboding backdrop of our economic tale, and it is important to keep in mind that the technocratic exploitation of the covid non-crisis as a push for supremacy is going to color everything that happens in our financial system from now on. You cannot talk about our economic condition without including the effects of the pandemic theater.

I believe that the next year in particular is going to be adrenalized and chaotic beyond what we have already seen in 2020-2021. Like I said, there are two sides of America that are now at an impasse. Something is going to snap, and I suspect this will happen in 12 months or less.

…click on the above link to read the rest of the article…

After the Gold Standard, Government Grew While the Dollar Shrank

Why ending the gold standard led to a bigger government and a smaller dollar

As The Hill’s Robert P. Murphy notes, most Americans associate the end of the gold standard and the ensuing dollar erosion with Nixon and his 1971 decision to “close the gold window.” In truth, however, the U.S. dollar was weakening long before that, something that can be explained by evaluating the length of the tether between gold and the dollar.

Between our nation’s founding and the Civil War, there was practically no difference between gold and currency. U.S. coins were minted with face values based on the quantity and price of gold or silver they contained. This kind of policy minimized the government’s role in monetary issues. Instead of being stored in vaults, the nation’s precious metals circulated. This decision essentially allowed the public to dictate monetary policy based on natural supply of the metals: individuals presented gold or silver to the U.S. Mint to be manufactured into into coins.

The Civil War saw the first shift away from this approach, when paper notes not immediately redeemable in gold and silver coins were issued by both the Union and the Confederate states (primarily to pay for war efforts). Both sides engaged in inflation, an obvious temptation when no other controls exist on money issue.

Between 1879 and 1914, the government did away with silver monetization, but restored convertibility between the dollar and gold with a roughly $20.67 an ounce ratio. By this time, however, the view of paper as money had already established itself. So long as a $5 bill and a $5 gold coin are fungible (interchangeable, with no loss of value between them), carrying $100 in paper money is just more convenient than carrying $100 in coins.

…click on the above link to read the rest of the article…

Inflation Is Winning, and Here’s Why the Fed Seems Content To Let It Happen

The U.S. Treasury publishes its balance sheet annually. The most recent, for fiscal year 2020, is so egregiously out of whack it might be hard to wrap your head around:

Total Assets: $5.95 trillion
Total Liabilities: $32.74 trillion
Net Position (total assets minus total liabilities): -$26.80 trillion

All figures above have been rounded to the nearest billions. The net position also factors in -$3.1 billion in “unmatched transactions and balances,” which is odd. (Looks like everybody has a little trouble balancing the checkbook…)

But the obvious focus? Liabilities outweigh assets more than five to one.

How will the U.S. government try to correct this imbalance? It’s almost certain they will use one of the only tools they have: inflation.

In fact, the latest official inflation numbers have come in, which continue the trend of rising price inflation (see chart):

Consumer prices up 4.7 percent since February 2020

Graph courtesy of the U.S. Bureau of Labor Statistics

Unlike the Fed, which likes to focus your attention on what Wolf Richter calls its “lowest lowball inflation measure” that ignores important prices, the BLS chart includes food and energy.

That’s bad enough. If, however, we use the same measures the Federal Reserve employed in 1990 like John Williams of ShadowStats does, the picture gets a lot worse:

July PPI Surged to New, Historic Extremes
Tempered by Unusual Factors, July CPI-U Held at 13-Year High for a Second Month, Just Shy of a 41-Year High
ShadowStats Alternate CPI Held at Its 41-Year High

Don’t let the name “ShadowStats” fool you. These numbers are based on the Federal Reserve’s own historic metrics that were retired in favor of the current, less-alarming measures.

Inflation is bad, and it doesn’t seem likely to get better any time soon…

…click on the above link to read the rest of the article…

More Money Doesn’t Mean More Wealth

The Federal Reserve has targeted a 2% inflation rate for years, as though it’s a holy grail. As though 2% inflation was an economic panacea that would perfectly balance employment, business investment and bank lending.

Recently, the Fed has loosened the reins on inflation and let it charge ahead. Quite a bit – two consecutive months over 5%, two and a half times their self-imposed target.

For many, the big question is whether this is (to use Chairman Powell’s much-maligned phrase) “merely transitory,” a “blip” caused by supply-chain disruptions and post-pandemic recovery that’ll work itself out soon…

Or whether this is more akin to Carter-era inflation. The kind that shows up unannounced like college acquaintance, invites itself in and makes itself at home on your sofa. Finds the remote, turns on a game, and settles in for the long haul.

There’s no crystal ball. Instead, we have the bond market (it’s the next-best thing), which has consistently predicted long-term inflation rates of 2% or less for the last 20 months.

Is this proxy for a crystal ball cracked? Possibly. Many analysts point to the Federal Reserve’s insatiable demand for Treasury bonds, claiming that distorts the bond market and its signals beyond human interpretation.

Some voices have given up on condemning inflation, and instead have chosen to welcome it.

Inflation raises worker pay!

Here’s a rather hilarious “explainer” on the economic benefits of inflation. The best part:

Rising prices make it easier for companies to put up wages. They also give employers the flexibility not to increase wages by as much as inflation, but still offer their staff some sort of raise. In a world of zero inflation some companies might be forced to cut wages.

…click on the above link to read the rest of the article…

Debt Ceiling Drama, Yellen Begins “Extraordinary Measures” to Stave Off Default

Two years ago, the debt ceiling was lifted. Lifting the debt ceiling to make room for more government spending has been pretty routine since since 1917.

Until now…

While it’s quite likely that U.S. debt had already reached the point of no return around three years ago, amazingly the situation might have just gotten even worse. Why?

The debt ceiling extension that was granted back in 2019 has expired. Oops.

Janet Yellen is taking what are called “extraordinary measures” that hopefully will keep the U.S. economy from spiraling into a historic disaster of defaults on bond payments and government obligations, skyrocketing interest rates, and massive inflation.

The non-partisan Congressional Budget Office (CBO) predicts the Treasury will run out of cash in October or possibly November.

So as reported above, the U.S. risks default within 90 days if nothing is done.

Yellen wrote a strongly-worded letter to Speaker Nancy Pelosi, describing the potential for “irreparable harm” if no action is taken.

But it might already be too late…

A closer look at the official U.S. debt reveals an unbelievable increase over the last 20 years:

US Public Debt, 4.6x over 20 years

Data from St. Louis Fed

That’s a 4.6x rise in “public debt,” meaning money the U.S. government owes. It’s called “public” debt because all of America shares the responsibility for paying it back. It’s public debt because the public, you and me, are on the hook for it.

Amazing, isn’t it?

Even so, this isn’t the first time “extraordinary measures” have kept the government spending machine humming along in response to debt-ceiling politics. But this could be the first time the clock will run out before a solution is reached.

Surprisingly — or perhaps not — the White House appears to be simply avoiding the current problem.

…click on the above link to read the rest of the article…

Market Volatility Is Troubling, But This Is the Real Problem

If you were awake at all this week, you caught glimpses of the stock market drama. Maybe you tuned it out? Here’s a quick recap:

Monday. Huge sell-off, the worst one-day decline since October 2020.

Tuesday: Big rebound recaptured 80% of Monday’s losses.

Wednesday: Rally continues, Monday’s losses fully recouped.

Thursday: Stocks rise a bit, ended the day up.

Friday: All major indices up, near their record highs.

And that’s just the numbers… Financial media headlines were absolutely schizophrenic. We saw everything from “Dow Plunges on Covid Resurgence” and “Speculators Flee Suddenly Volatile Market” to “Wall Street Ends Higher, Powered by Strong Earnings, Economic Cheer.”

Economic cheer? Let’s take a closer look at that last article

It starts with the typical bullish post hoc rationalization for the market’s response: “robust corporate earnings and renewed optimism about the U.S. economic recovery fueled investor risk appetite.”

Yay Wall Street! Stocks tried to go down and failed, everything’s all better. Move along, nothing to see here…

Amid all the hysteria, there were a few interesting tidbits: this CNBC article and another published on Monday both emphasized market volatility. Both titles read like a PR firm’s damage control efforts: “Don’t make this mistake,” and “volatility can be a good thing.”

Don’t be afraid of volatility! It’s a good thing!

While volatility can be troubling for investors, experts caution against any hasty selling when markets fall. In addition, slumping stock prices can be a prime buying opportunity that investors should take advantage of.

Volatility is a “normal part of the process of investing.” And if your stocks go down, well, buy more of them!

…click on the above link to read the rest of the article…

Highest Inflation in Thirty Years Vs. Denial, Hand-Waving and Excuses

Stepping on a Lego in bare feet hurts. Once you know the Lego is there, and it hurts when you step on it, you can’t ignore it. That Lego is right out in the open, after all.

High inflation feels very similar. At first it’s a shock, then it hurts, then you just can’t pretend it’s not there. Unlike a stray Lego brick, though, you can’t just tidy inflation away. (That’s the Fed’s job.)

Inflation robs you in the subtlest possible way. And once you know high inflation is there, and it bleeds your buying power month after month, it’s hard to downplay or ignore. At least for you and me.

But dismissing high inflation and hand-waving it away with vague excuses? That’s precisely what the Fed, the Treasury, the entire Biden administration and cheerleading “experts” appear to be doing.

Why? Because most Americans seem to be ignoring them.

“The headline CPI numbers have shock value, for sure”

This has been widely reported, but just so we’re on the same page:

Consumer prices increased 5.4% in June from a year earlier, the biggest monthly gain since August 2008.

That’s what Jamie Cox of Harris Financial Group meant when he told CNBC, “The headline CPI numbers have shock value, for sure.”

Yes indeed. This is the largest one-month jump since 2008. If you take the “lowest of the lowball” Core CPI measure, which ignores food and energy prices (because nobody really needs to eat, right?) the June annual inflation rate is only 4.5%, the biggest jump in 30 years.

The article called this rise “higher than expected.” That’s one way of putting it. Like saying a wreck that totals your car is “inconvenient.”

We shouldn’t worry, though! This is just transitory, just a blip of supply chains and post-pandemic pressures relaxing. Remember?

…click on the above link to read the rest of the article…

Gold “Underpriced,” Heading Back to $2,000: Goldman Sachs

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold’s path to $2,000 is open, falling Treasury yields are a major tailwind for gold, and gold, silver and platinum all make for good investments in the current climate.

Goldman Sachs: Gold underpriced at $1,800, ready to move back to $2,000

Even though gold met many bullish expectations last week by consistently closing above $1,800, Goldman Sachs analyst Mikhail Sprogis thinks the move could be the start of a much larger uptrend. Sprogis, who had already called for $2,000 gold in a previous note, stuck to his forecast and said that gold is well-positioned regardless of which direction stock markets are headed.

As of right now, Sprogis said that gold is being pressured by what is likely excessive optimism, with investors buying into stocks and betting on a strong global economic recovery. If inflation expectations remain mitigated as they have been after the latest Federal Reserve meeting, Sprogis says that gold is scheduled to move up gradually with subdued real interest rates and a rise in emerging market wealth.

Interest rates matter for gold because sovereign bonds, especially U.S. Treasury bonds, are viewed alongside gold as safe-haven assets. Unlike gold, bonds pay interest to investors. So when bond yields drop, the opportunity cost for holding gold instead of bonds diminishes. Lower interest rates make gold a more attractive safe haven.

Gold’s price rise could be much quicker and stronger if the global economy disappoints or if transitory” inflation emerges as a bigger threat than is currently believed. In this scenario, Sprogis said prices will be supported further by gold’s current undervaluing and relatively low portfolio allocation among the majority of investors.

…click on the above link to read the rest of the article…

What If The Next Major Cyberattack Targeted The Internet?

What If The Next Major Cyberattack Targeted The Internet?

Over the past few months I have been writing analysis on a planned crisis war game organized by the World Economic Forum called “Cyberpolygon.” The event will be held this week on July 9th, and it’s allegedly designed to simulate a massive cyberattack that somehow disrupts the global supply chain, or at the very least disrupts the supply chain of multiple large economies.

Why am I so interested in this war game? Well, many of my readers will recall that the last major simulation the WEF and the Bill And Melinda Gates Foundation held was Event 201, a global pandemic exercise which portrayed a coronavirus outbreak spread by animal carriers to humans killing millions of people while forcing the shutdown of multiple first-world economies. Event 201 was scheduled for October 2019 – two months later the exact pandemic scenario they simulated happened in real life, save a few minor details.

Klaus Schwab, the head of the WEF, was very quick to exploit the COVID-19 outbreak as a rationale for the “Great Reset” agenda: A socialist reconstruction of the world’s financial system and political structure that globalists have been clamoring for since at least 2014. Truly, the biggest beneficiaries of the pandemic were the same people that simulated the outbreak only months beforehand during Event 201.

So, of course many people are beginning to wonder if lightning will strike twice for the globalists at the WEF. Will there be a large scale cyberattack that brings down the international supply chain within the next few months? Will there be another miraculous coincidence that destabilizes the world’s trade systems and creates social strife?

Cyber-terrorism is already disrupting the economy

There have already been a few disturbing near-crisis cyberattacks in the past month.

…click on the above link to read the rest of the article…

Cornered Fed Weighs Dilemma: Market Crash or Runaway Inflation?

The U.S. economy is at a fork in the road.

One route leads to the return of market fundamentals and sane stock valuations, at the cost of a historic market correction.

The other route leads to runaway hyperinflation that eats up the debt almost as fast as it devours the dollar’s buying power. That would likely cause the dollar to lose its hegemony as global reserve currency and bring about a simultaneous market collapse.

Here’s where we are, and where we might be going…

How did we get here?

For the most part, through Fed interventions that suppressed interest rates for the last 13 years, creating artificial demand for U.S. IOUs in the form of bonds, and generally maintaining an “easy money” policy. (And let’s not forget the hundreds of millions of stimulus checks, unemployment extensions, fraud-riddled Payroll Protection Program and the other boondoggles associated with the pandemic lockdown.)

Now, all this works great. For a while. The Fed came out of the Great Recession with $2 trillion on its balance sheet. Today, over a decade later, its balance sheet sits at $8 trillion. And climbing.

Let’s reiterate: This works great. For a while.

Junk-rated companies are able to borrow massive amounts of money (and spend it all on bitcoin, sure, why not?) at absurdly low rates, only 3% over the “safe rate” offered by Treasurys. Everyone who owns stocks made money, at least on paper. We’ve already watched stock valuations climb into the stratosphere as lockdown-addled day-traders took their stimmies to the Robinhood casino to play with the /WallStreetBets and AMC apes. We’ve seen home values skyrocket (15% annually in April 2021 and currently about 30% higher than the peak of the housing bubble).

…click on the above link to read the rest of the article…

CIBC: Gold is still going towards $2,000 and silver to $31

CIBC: Gold is still going towards $2,000 and silver to $31

Despite the selloff that caused gold to drop by more than 5% within a week, Canadian bank CIBC is still optimistic on both gold and silver’s prospects over the next few years. While the bank downgraded their average 2021 forecast for gold to $1,925, they expect the metal to average $2,100 in 2022.

Likewise, CIBC’s analysts downgraded their average silver forecast for 2021 to $28 from $29, but said that the metal will nonetheless head onwards to $31 next year. Interestingly, the analysts emphasized that physical precious metals will dominate demand:

We expect demand for physical gold and silver will remain elevated, not only from traditional investors but also from a wider array of investors seeking a safe-haven option to hedge against market volatility.

Regarding the recent fall in prices, CIBC’s analysts explored the specific causes and concluded prices aren’t likely to stay suppressed for much longer. The Federal Reserve clearly wants to ruffle its feathers and assume a hawkish stance to subdue inflationary threats. Frankly, the Fed’s options are limited. Money printing has slowed in recent months. However, President Biden’s $6 trillion spending plan would place the annual deficit at more than $1.3 trillion over the next decade.

In general, CIBC fully expects the overall environment of monetary stimulus and loose-money policies will last for a good, long while.

Furthermore, CIBC sees “real interest rates” (Treasury rates minus inflation) as an even bigger driver for gold. When real rates are negative, bond buyers lose money even after their bond matures. The analysts noted that gold has historically posted great performances regardless of headline interest rates, so long as real (inflation-adjusted) rates remain low. At the moment, the five-year real interest rate sits at -1.54% compared to an all-time low of -1.86% in May 2021. That is low.

…click on the above link to read the rest of the article…

Transitory Inflation Takes Hold of the Economy – How Long Will It Last?

Just a couple of weeks ago, Bloomberg reported that Federal Reserve Chairman Jerome Powell sold investors on the idea that rising inflation wasn’t going to last. Officially, as of May 2021, inflation had risen 5%, the highest since August 2008.

Here’s how we know investors bought it: while the CPI is running at 5%, the yield on the 10-year Treasury languishes around 1.5%. For comparison, back in 2008, the 10-year Treasury yield stayed above 3.5% from January through November (and even broke 4% on a few occasions).

Bond buyers do not want interest rates to rise. A 10-year bond yielding 1.5% looks pretty pitiful if interest rates rise to, say, 3.5% (like back in 2008). So clearly bond investors aren’t expecting interest rates to rise in response to this little blip of inflation.

Maybe you remember the specific term Powell used to describe a temporary period of excessive inflation?


Whew, that’s a relief! At least we won’t have to tolerate this way-over-target inflation situation forever.

Today’s inflation: how high is too high?

We know that real-world inflation is somewhere between 9-12%, depending on which Federal Reserve methodology is used to calculate it. Either way, it’s quite high.

That’s right, we can get a closer look at the realities of inflation using methods developed and employed by the Federal Reserve itself.

In the 1980s, the Fed was aware that Americans spent money to maintain their standard of living (in other words, your level of income, comforts and services like healthcare you purchase). Official inflation calculations took this into account.

Using the 1980s formula, you can see how today’s Fed “official inflation” stacks up on the chart below:

If you thought 5% inflation was bad, 13% is much worse.

…click on the above link to read the rest of the article…

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