Last week, the Bank of England threw in the towel on its inflation fight and launched a quantitative easing program. Why? Because something broke in the UK financial system. That led to a rally in stocks and precious metals this week as many in the US realized the Fed might be closer to a pivot than previously thought. In this episode of the Friday Gold Wrap podcast, host Mike Maharrey talks about why he thinks something is going to eventually break in the US economy.
The August Trade Deficit fell for a fifth straight month to -$67.4B. The Deficit is now down an 37% from the high struck back in March.
As shown by the chart below, this is mainly driven by a fall in Imports as Exports have stayed relatively flat.
Managed Money continues to hammer the price of gold lower as the Net Short position increased to -43k contracts.
Please note: the CoTs report was published on 9/30/2022 for the period ending 9/27/2022. “Managed Money” and “Hedge Funds” are used interchangeably.
The Fed has found it easier to raise rates than shrink its balance sheet. September was supposed to be the month when the Fed got serious about shrinking the balance sheet. After a few months of warming up with $47.5B monthly reductions, the Fed was going to step up in September and shrink by $95B ($60B in Treasuries and $35B in MBS).
That didn’t happen.
With a hurricane barreling toward his home, Friday Gold Wrap podcast host Mike Maharrey called an audible and recorded this week’s show ahead of time. And since the hurricane is in the news, as well as top-of-mind for his family, he uses it as a jumping-off point to talk about some economics including the concept of “price gouging” and the “broken window fallacy. He also touches on dollar strength and how it’s impacting the gold and silver markets.
I typically start this analysis with gold, but the action in the platinum market is impossible to ignore. The next four charts should tell you everything you need to know.
First, similar to gold and silver, platinum has seen a much higher delivery volume since the pandemic struck in 2020.
Do you have silver in your portfolio?
You should!
According to research by Oxford Economics, investors would benefit from an average of 4 to 6 percent silver allocation within a diversified portfolio. This is far below the average investor’s exposure to silver.
Money Supply growth was barely positive in August at $2B and sits well below the $233B seen last year. As the chart below shows, Money Supply growth has collapsed since February. Last year started with five straight months above $200B, whereas 2022 has only seen one month above $100B and that was January.
The Fed has talked a big game lately. Many people (including me) assumed the Fed would fold a long time ago. There is a very good reason — the Fed will crush the economy and the US Treasury with higher interest rates.
In reality, the Fed is holding a losing hand and trying to bluff its way to victory.
The price analysis last month titled Caution Warranted in the Short Term, highlighted the potential risk in gold and silver after a rough July and early August. It concluded the path was much less clear. There were two possible paths forward: Gold could be range bound again between $1750-$1800, or, a hawkish Fed at the Jackson Hole summit could potentially crack $1750 and open up the door for new lows. As it turns out, it was the latter. The gold miners are definitely anticipating this.
