Despite doing nothing at the June meeting, Federal Reserve officials continue to talk tough about fighting inflation. The anticipation of another rate hike created headwinds for both stocks and gold this week. But Friday Gold Wrap host Mike Maharrey thinks something is amiss. In this episode, he talks about the disconnect between the central bankers’ rhetoric and their actions. Are they clueless or running scared? This week, he also talks about another big jump in the national debt and the latest on central bank gold buying.
Excluding another big sale by Turkey, central banks were net buyers of gold in May, according to the latest data compiled by the World Gold Council.
Eight central banks added gold to their reserves in May with net purchases totaling 50 tons.
June continued a stock market rally that produced big gains through the first half of the year. But what exactly is driving this rally and is it really justified by the economic fundamentals? Peter breaks it down in a recent podcast and concludes that this is likely a bear market rally.
The Fed managed to reduce its balance sheet by $45 billion last month. The majority of this was in Treasuries of 1-5 year maturities with a reduction of $55B. The next biggest reduction was in mortgage-backed securities MBS totaling $20 billion. This fell short of the target of $35 billion. In fact, the Fed has still never reached its MBS target since balance sheet reduction began.
Meanwhile, the central bank continues to add bank bailout loans to its balance sheet.
There was a lot of economic data this month that seems to signal a strong economy. Does it though? Is everything really fine? In this episode of the Friday Gold Wrap, host Mike Maharrey digs deeper into the data and reveals a less sanguine reality. He also explains the inner workings of the spot price for gold, how it’s determined, and the factors that influence it.
If you listen to the mainstream financial media, you might think gold has fallen out of favor. Most people remain fixated on the surging stock market or the next move by the Federal Reserve. But perception doesn’t always line up with reality – especially mainstream perception.
While the trendy kids are ignoring the yellow metal, there are plenty of people buying gold. In fact, gold demand hit an 11-year high in 2022.
So, what do these folks know that the mainstream might be missing? Are there good reasons to buy gold now?
Seasonally Adjusted Money Supply in May increased $131B. This is the first growth in adjusted M2 since last July and the largest increase since December 2021.
When you buy physical gold, the price you pay will start with the “spot price.”
As defined by Investopedia, the “spot price” is “the current price in the marketplace at which a given asset—such as a security, commodity, or currency—can be bought or sold for immediate delivery.”
So, how is the spot price for gold determined?
There has been a steady migration of gold from West to East over the last three decades.
When the World Gold Council published its first Gold Demand Trends report 30 years ago, Asian demand made up 45% of the world’s total. Today, the Asian share of global gold demand is approaching 60%.
With a hawkish Fed and dollar strength, gold has dropped below $1,950 an ounce, but the technicals appear to indicate that we are at or near the end of a correction.
The technical analysis last month was published when gold was around $1975 and concluded:
The indicators are now mostly neutral with a bearish lean. There are some slightly bullish indicators, but nothing strong enough to give a clear signal. This suggests the price could drift lower until it finds the right catalyst to reverse. There should be plenty of catalysts on the horizon, but the biggest one will be how the Fed responds to the next crisis. Until then, pressure is pointing downward.
That conclusion has been accurate over the last month as the price has drifted lower with any rallies being sold.
