Breaking Down the Balance Sheet
The Fed has a targeted balance sheet reduction of $95B a month. Up until this point, the Fed had failed to reach its target almost every month since QT began.
In the latest month, the Fed made up for their recent shortfall with a big balance sheet reduction of $139B, exceeding their target by 50%! Despite the larger-than-expected reduction, the Fed still missed its target on Mortgage Backed Securities (MBS).
According to the BLS, the economy added 263k jobs in November with a modest revision up in October from 261k to 284k but a revision down in September from 365k to 269k. October was a beat against median expectations of 200k. The employment rate (black line) stayed flat at 3.7% while the labor force participation ticked down from 62.2% to 62.1% This is the weakest labor force participation since December of last year.
Federal Reserve Chairman Jerome Powell came out this week and indicated the central bank is set to pivot away from its aggressive rate hikes. But he couched the announcement in hawkish terms. The markets bought the pivot and ignored the hawkishness. In this episode of the Friday Gold Wrap podcast, host Mike Maharrey puts Powell’s remarks in a broader context and speculates about what might be coming down the pike.
While the data this month looks weak, I think there is more to the story. My hypothesis is speculative in nature, so I will save it for the end after going through the data.
There are a lot of things they didn’t teach you in school. In this episode of the Friday Gold Wrap, host Mike Maharrey tells you a Thanksgiving story you’ve probably never heard before – at least not from your school teacher. He also touches on the Fed minutes that came out this week that seem to confirm a soft pivot on rate hikes.
Seasonally Adjusted Money Supply in October was negative for a third consecutive month, coming in at -$88B. This came on the heels of the largest drop in Money Supply ever last month.
Slowly but surely, physical supplies of gold and silver are being drained from the Comex. This has put pressure on the system. We are now seeing that pressure manifest itself in the data.
China is likely quietly stockpiling gold in a bid to further minimize its dependence on the US dollar.
The price analysis last month suggested that more time was needed for a sustainable rally. It concluded:
It looks like this market will turn sooner or later. Still, though, support has become resistance so the market has some work ahead of itself. Medium to long-term investors should feel very confident buying at current prices, even if the price action remains choppy in the short-term.
Gold and silver continue to flow out of the COMEX vaults.
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.
