The first month of Federal Reserve balance sheet reduction turned out to be a big dud. As it turns out, the balance sheet shrank by less than $1 billion in June during the first month of quantitative tightening.
As part of its vaunted inflation fight, the Fed announced in May that Quantitative Tightening (QT) was set to begin last month. From Reuters:
According to the seasonally adjusted data, M2 increased by $23B in May. Except for the contraction last month (the first contraction in 12 years), it was the smallest monthly increase in M2 since the start of COVID.
After a big miss on the Powell/Brainard nominations in November, the price analysis has been fairly accurate. Identifying the initial breakout above $1800, mentioning that $1900 was fragile support, and last month concluding that gold had found a bottom around $1800.
For the past month, gold has been consolidating within a tight range around $1850. The data suggests the next move is most likely up. Lots of indicators have bottomed, which leaves little downside remaining. The market has also priced in an extremely aggressive Fed and held up very well over that time.
This analysis focuses on gold and silver physical delivery on the Comex. See the article What is the Comex for more detail.
The Comex has signaled weakness in the silver market but has been some activity bubbling under the surface. What’s really going on with silver?
Outflows of gold from Comex vaults have accelerated. Meanwhile, there is some shuffling of inventories of silver.
This analysis focuses on gold and silver within the Comex/CME futures exchange. See the article What is the Comex? for more detail. The charts and tables below specifically analyze the physical stock/inventory data at the Comex to show the physical movement of metal into and out of Comex vaults.
After running the largest monthly surplus ever in April, the Treasury was back to running deficits in May. The Federal government spent $455B in May and collected $389B in taxes, which resulted in a net deficit of $66B.
The latest seasonally adjusted inflation rate for May came in scorching hot at 0.98% MoM and 8.62% YoY, beating expectations of 0.7% and 8.3% respectively. All prices rose in May with 9 of 11 categories rising faster than the 12-month trend, representing 97.5% of the total CPI.
The April trade deficit came in at -$87B. This was the first time in 5 months that a new record had not been set (pink dot below). The Net Goods Deficit remained below -$100B for the fifth straight month. This Trade Deficit comes on the heels of an absolutely massive -$108B Deficit in March. It’s likely that some of the April deficit was counted in March, so expect a rebound in the May number.
The Treasury increased the total debt by $125B in May after a brief drop in April. This brings the total debt increase so far in 2022 to $880B. More importantly, though, the cost to service the debt is exploding. Total annualized interest has increased by $40B or 13.5% since the start of the year!
Please note: the COTs report was published 6/3/2022 for the period ending 5/31/2022. “Managed Money” and “Hedge Funds” are used interchangeably.
Gold
Since the peak on March 8, Managed Money has massively reduced its Net Long positions by 98k contracts or 66%. Despite massive selling, the gold price has actually held up fairly well. The last time Managed Money net longs dropped this low in February, gold was struggling at the $1800 level, versus the struggle at $1850 now.
