Good morning!
I suspect this has to do with the yen intervention.
Propping up a currency without fixing the fundamental problems usually just means trashing others. Making something shrinking look like it’s holding up by shrinking the rulers right along with it.
Gold doesn’t shrink so easy.
+ Iran?
Some. The thing is we’ve seen similar Iran news several times, and while it does usually pop gold a little, what we’re seeing today is much bigger. I think the Fed dragging its feet on rate hikes two meetings in a row, especially after all the tough talk, is also kicking in some. But the size and timing of this jump in gold, along with the mechanical link between currency shenanigans and currency values is a smoking gun with the yen intervention behind the crosshairs.
Keep in mind the context … all currencies go down. Inflation. If one goes up, the issuer inflates it down to “stay competitive”. If it goes down, the other issuers inflate theirs down to stay competitive. Over time, gold retains its value, while currency depreciates so it takes more of it to buy the same gold. Also the same stocks, houses, groceries …
The gold rally has also broken new technical ground, suggesting there’s more ahead. Not necessarily immediately – sharp moves have a way of being at least partially reversed, and we still need to keep an eye on the Fed – but it’s broadly bullish for the coming months.
⚡️BREAKING: The Iranian Negotiation Team told Fars News that the Hormuz Deal with Oman doesn’t mean the Strait will be Opened
“The Reopening of the Strait of Hormuz will require separate Arrangements that also include the fulfillment of US Commitments, like lifting the Naval Blockade, Iran’s Frozen Funds, and Energy Sanctions”
Hmmm … doesn’t seem to have held gold back, but stocks took a header in today’s session …
Copper and silver up hard too … platinum not so much after yesterday’s moonshot ….
Gold Surges as the Debt Reckoning Begins
The Daily Reckoning’s Adam Sharp fills in some interesting detail on my big picture view:
“It was a good day for gold bugs…
If you read mainstream financial outlets, they’ll tell you precious metals are jumping due to the prospect of peace with Iran, which should keep interest rates lower.
Pffffft.
This move is more about debt, the dollar, Japan, and fallout from the Iran war.
Let’s start with what’s happening in Japan…”
…………….& yet where are the Gas lines?
Not very “Jimmy Carter” as yet
Mike
The main ingredients for gas lines aren’t there (yet). Shortages happen only when prices aren’t allowed to match demand with supply. At various times the 1970s featured price controls, subsidies and rationing regimes like five gallon maximums. odd-even rationing, and other forms of government interference. At the end of the day, people can’t buy more stuff than can be sold. In a free market, price limits consumption to production. Attempts to overrule the market by force may result in lower prices, but some other mechanism must materialize to take their place to limit access.
It’s broadly similar with socialized medicine. You can make it more affordable, but either supply must increase or demand be limited by other means such as long waiting times, bureaucracy restricting access, etc.
Barron’s just ran a headline claiming “the Fed’s next rate move might actually be a cut”.
If it is, back up the truck!
Gold going up BABY!
Echoes of last year. It was right around mid August that gold jumped on the escalator.
We are entering a generally favorable seasonality pattern. Mike’s Money Talks has a good summary and chart. Synthetic Systems by the way does take seasonality into account (see the fuller list here), so if you’re looking at its forecasts, don’t double count it by adding it in again.
Today gold’s getting a bit of a kick from what the market interprets as a weak jobs report and a marginally easier Fed ahead. So we’re getting a weaker dollar and more inflation.
This “weak jobs report” stuff by the way is a load of media hooey. Due to a decline in immigration, it takes fewer jobs to be at full employment. Yet Wall Street media continue to look at the absolute raw numbers in the context of yesteryear’s high immigration rates, when it took a couple hundred thousand new jobs monthly just to keep up with population growth. Maybe it’s because they like anything that bolsters their pleas for more inflation. The headline jobs number they fixate on doesn’t account for population trends. The far more meaningful unemployment rate, which does, actually fell this month, indicating that the supply of jobs was more than enough to meet demand.
The jobs market didn’t weaken; it tightened.
It remains to be seen whether the Fed is fooled by this.
But nobody’s fooling gold.
So gold has put some starch in its step … in just three days IAU is up 6.51% … on the week 7.23%.
On My Radar: The Yen Carry Trade – Part II
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
– Ludwig von Mises, Human Action, 1949
—————————
“Thursday night, July 30, in Tokyo. Most of Wall Street was already home for the night.
In the span of about an hour, with no press conference and no confirmation from anyone in the Japanese government, the yen moved from ¥162.80 to the ¥157 mark against the dollar. A currency that trades trillions of dollars a day simply doesn’t move that fast on its own …”
$4500…………………. 😉
Big whoop-de-do in the market this morning over a Treasusry “buyback” announcement. Of course the Treasury has no funds to “buy back” anything without selling something else. What it boils down to is a shift in maturity distribution from longer to shorter term debt, not a sustainable strategy since there’s a brick wall looming at the point where all its debt is short term.
Why would it do this? The Fed can more quietly control yields on the short end of the yield curve. Through the magic of inflation of course, which explains why gold is rocketing higher this morning. It may be easy to fool media lite and its audience, but it’s hard to fool gold.
Gold is holding yesterday’s gains this morning. But Treasuries are giving up most of yesterday’s gains as it sinks in that yesterday’s sound and fury solved nothing.
The fundamental issue is the debt continues to spiral out of control. Until there is a meaningful effort to at least tap the brakes, it’s all downhill from here.
“… we fear the markets will view this action as lacking credibility, meaning this could contribute to higher term premium and yields over time should Treasury become more opportunistic in its approach to debt management …”
So Wall Street isn’t fooled either.
“Total U.S. debt has topped $40 trillion for the first time, the Treasury Department said on Wednesday, drawing fresh warnings that a fiscal crisis is brewing as ballooning costs for social safety-net programmes and interest payments far outstrip revenues held back by tax cuts.”
Wow that last trillion or so went fast.
Even Jim Cramer is getting tech-skeptical:
““If you own too much tech, you’re going to be slaughtered — and you won’t even know what hit you,” Cramer said.”
Turn 90° for best viewing on a small screen. Note that because this chart is not in terms of dollars, but in terms of GDP, it is already implicitly adjusted for inflation. This accurately represents the real federal debt burden.
Gold took a header today as the dollar rose on more tough talk from Warsh at the Jackson Hole confab. The FOMC has already whiffed on rate hikes twice since Warsh took the helm; it has to hike in September or it loses credibility. Credibility loss is of course nothing new for the Fed, but the stakes are higher with the new sheriff and his hawkish rhetoric.
That’s short term of course. More easy money is practically inevitable unless the big spenders in Congress at least start tapping the brakes. It will take a lot more than Bessent’s gimmicks to keep Treasury afloat.
Gold appears to have returned to the pattern seen earlier this year when it traded contrary to oil. This is probably due in part to tough talk on inflation emanating from Fed chairman Warsh. For now it’s persuasive, but as time passes Warsh will be like the little Dutch boy trying to hold back an ocean of federal red ink. I expect gold to resume its upward trek in due course.