Gold Breaks Record Highs: What’s Driving the Surge?

Gold has been building on its all-time highs set earlier in the year. The price of gold in dollars is now above $2,500 per ounce. That’s more than 20% higher year to date, which is a few percentage points better than the S&P 500’s gain during the same time frame.

Gold continues to rally, …

… amid US dollar weakness.

The gold price has further diverged from US real rates.

Source: @TheTerminal, Bloomberg Finance L.P.

Gold miners’ shares have been outperforming gold in recent days.

But this could be just the start of a longer leg higher for gold.

This asset didn’t make a new high for almost four years (August 2020 to March 2024) and is now breaking higher almost daily. Going back further, you can see what some analysts call a massive “base” or “consolidation” of its price from 2011 to 2020.

The bigger the base, the higher in space, referring to the potential future price of an asset. We’re talking about breaking out from a decadelong “base.”

The gold price, when adjusted by the CPI, has broken above the trendline, joining the 1980, 2011, and 2020 peaks. That’s a huge barrier of former resistance that looks as if it has been overcome. Provided it is genuine, and there are few technical grounds for suspecting otherwise, the breakout has huge implications, not just for gold but for inflation generally.

Gold has been trading above its 50-day and 200-day moving averages for the past month and much of the past year.

There are at least three fundamental catalysts that support a bullish case for the centuries-old store of value:

The threat of escalating war in the Middle East and the ongoing war between Russia and Ukraine. Simply put, more developments in these wars could lead to further “shocks” for stocks and send investors into “safe haven” assets like gold or bonds.
It looks like the Federal Reserve is comfortable returning to “business as usual” and will lower interest rates. This isn’t that long after the economy endured a 40-year-high rate of inflation (and still-rising prices). Cheaper dollars means rising prices for dollar-denominated assets like gold.

Other central banks are also buying gold as a way to hedge against the dollar to the tune of more than 1,000 tons in each of the past two years.

Campaign promises from the U.S. presidential candidates to “fight” inflation? We’ve seen this story before. The proposed policies, in one way or another, will only exacerbate U.S. debt and inflation, and certainly won’t get to the root of the problem: fiat currency and money printing.

The bullish gold trend may not be over, but it’s a reminder that it can pay to be early.

Gold is in a raging bull market, which is why we own GDX.

A few months ago, the metal finally topped $2,000 an ounce – a level it has struggled to break through for years.

Gold has catapulted above $2,400 since then. All told, it has soared as much as 33% from its low last October.

Central banks – were buying gold at the fastest pace on record. Eventually, more folks would catch on and push gold’s price even higher.

This situation will play out the way it always does with the mom-and-pop crowd clamoring to buy only after savvy investors have made the easy money. And that means the current gold boom MAY only be in its infancy.

We’ve (unfortunately) written plenty about major wars over the past two years and regular readers are up to date on the Fed. So, let’s explore the third point above, about the politics of the situation for gold and investing in general.

This part of the financial discussion has developed recently because presidential candidates Kamala Harris and Donald Trump have finally gotten around to discussing their economic proposals in more detail over the past week.

Reading through everything that they’ve said, we’ve come back to a familiar conclusion: There are equal-opportunity inflation concerns to go around.

The national debt grew by about $8 trillion during Trump’s term as president with only about half coming from COVID-19 relief measures. The 2017 tax cuts, straight-up regular spending, and interest on the debt made up the rest.

Meanwhile, Harris’ solution for widespread inflation appears to be price caps on groceries.

She has also suggested giving first-time homebuyers $25,000 in down-payment support and reviving the child-tax credit. Trump’s vice president pick, J.D. Vance, also supports the child-tax credit.

These measures would be widely welcomed by many, but they’re also costly. So the question is: How will you pay for it?

The federal government carries a $35 trillion debt – and is projected to pay nearly $900 billion in interest in 2024 – for a reason. Government investments, even good ones, clearly have a strong history of not paying for themselves.

We all know who ends up with the bill: We the People, the Taxpayers.

The Fed at Jackson Hole

The FOMC minutes reveal a readiness to start cutting rates as concerns over employment outweigh inflation uncertainty.

The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting. Many participants commented that monetary policy continued to be restrictive, although they expressed a range of views about the degree of restrictiveness, and a few participants noted that ongoing disinflation, with no change in the nominal target range for the policy rate, by itself results in a tightening in monetary policy.

A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased. Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration. Many participants noted that reducing policy restraint too late or too little could risk unduly weakening economic activity or employment.

The word count trends below illustrate the shift in sentiment.

Adjusted for inflation, the fed funds rate is now above 2% as the monetary policy continues to tighten.

The widely anticipated downward revision to payrolls was substantial.

Source: @economics Read full article

Source: CNBC Read full article

Here is the breakdown by sector.

After the employment revision and dovish FOMC minutes, the market now expects 105 bps of Fed rate cuts this year, with a substantial chance of at least one 50 bps cut.

The Canadian rail strike could significantly impact US agriculture and industry. We will provide further updates as the situation develops.

The U. Michigan’s index of buying conditions for houses remains at record lows.

Depressed Home Depot sales indicate that home improvement activity has been soft.

For once in my lifetime, the Fed might actually be ahead of the curve if they start the interest rate cut cycle. The American consumer hasn’t come close to throwing in the towel. We may not have that anticipated recession!