We’ve talked about the recent selloff in gold. On the other side of the coin, the NASDAQ has made a string of 52-week highs. What is driving these market dynamics?
The Fed.
The markets generally believe that the Federal Reserve is finished hiking interest rates, or at least close enough to being done that a rate cut is on the horizon.
And they’re wrong.
Which countries hold the most gold?
Central banks around the world have been piling up gold. After a record-setting 2022, central bank gold reserves increased by 228 tons through the first three months of 2023, a Q1 record. This was 38% higher than the previous first-quarter record set in 2013.
We saw a big selloff in the gold market last week and the price dropped below $2,000 an ounce. The catalyst for that selloff was tough talk from several Federal Reserve officials and an increasing expectation that the central bank will raise rates again in June. As Peter Schiff explained in his podcast, everybody thinks the Fed is going to win the inflation fight because it is going to be even tougher. In reality, they are talking tougher because they are losing the fight.
Banks have restocked gold recently, but with the massive drawdown in inventories over the last year, the recent increase has done little to actually replenish those supplies.
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.
There are a few things that Friday Gold Wrap host Mike Maharrey writes about that don’t seem to garner much interest. In this show, Mike is going to talk about two of those things, why they matter, and why you should care. He also talks about the recent drop in the price of gold and what the markets are getting wrong.
Gold had dropped by over $100 in the last two weeks. Meanwhile, the dollar rose to a 7-week high on May 17. If you’re thinking that this looks a lot like how gold and the dollar moved at the height of the Federal Reserve’s inflation fight, you’re right. That’s because the central bankers at the Fed have stepped up the hawkish rhetoric in the last couple of weeks increasing expectation that interest rates will stay higher for longer.
But talk is cheap. The real question is how will the Fed respond when the bottom drops out of the economy.
The CPI data for April came out this week. The mainstream spin was that it was more good news for the Fed’s inflation fight. But the actual data tells a different story. In this episode of the Friday Gold Wrap, host Mike Maharrey talks about the CPI report and the disconnect between the mainstream narrative and reality. He also highlights some interesting Q1 gold demand numbers.
The Federal Government ran a surplus last month, as it typically does in April due to the tax deadline. The surplus was $176B which was 43% lower than the surplus last April. As the chart below shows, this was driven entirely by collapsing revenues as expenses actually fell as well.
The CPI rose in March by 0.37%, which was much larger than last month’s 0.06%. As shown below, this was driven by the energy component flipping from negative to positive.
And there’s even worse news. The math is about to turn on the CPI calculation.
For the second straight month, gold flowed into ETFs in April.
Globally, gold-backed ETFs reported net inflows of 15 tons last month, reflecting an increase of about $824 million.
