IMF Expects Precious Metals Index to Rise

IMF’s economic outlook for 2020 is less grim, but the more distant future is more worrisome. Therefore, the precious metals index is expected to rise.

October’s edition of the IMF’s World Economic Outlook Report is out! The main message that the report conveys is that the IMF now predicts a less severe global contraction than in 2020 but a slower recovery in 2021 . The global economy is projected to plunge 4.4 percent this year and rise 5.2 percent in the subsequent year, contrary to the -5.2 and 5.4 percent changes forecasted in June.

Unfortunately, the prospects for emerging countries, excluding China, have worsened, and the economic decline for 2020 is projected to be greater than previously estimated. As a result, the pandemic will reverse the progress made since the 1990s in reducing global poverty.

When it comes to the US economy, it is forecasted to contract by 4.3 percent this year before growing at 3.1 percent in 2021, compared to -8 percent and 4.5 percent seen a few months ago. However, the reasons for the celebration are limited, as these projections could be revised down soon.

You see, the problem is that the second wave of the coronavirus cases (see the chart below) is hurting the employment rate again.

As the chart below points out, the number of Americans who applied for unemployment benefits has recently risen to the highest level over the last few weeks.

Even though the IMF’s near-term projection improved, another issue is that the baseline forecast envisages growth to slow down into the medium term , as the deep downturn this year will harm the supply potential. It means that the US will only modestly progress toward the 2020–25 path of economic activity projected before the epidemic .

Most importantly, the subdued outlook for medium-term growth comes with a significant projected increase in public debt stock. What is worrying is that the reduced potential output also implies a smaller mid-term tax base than previously anticipated, making repaying debts even more difficult.

Indeed, debt is an increasingly pressing problem all over the world , including the US. As a matter of fact, according to the IMF’s Fiscal Monitor , the debt-to-GDP ratio will stabilize next year everywhere but China and the US:

In 2020, government deficits are set to surge by an average of 9 percent of GDP, and global public debt is projected to approach 100 percent of GDP, a record high. Under the baseline assumptions of a healthy rebound in economic activity and low, stable interest rates, the global public debt ratio is expected to stabilize in 2021, on average, except in China and the United States.

However, public debt is not the only big problem in the US. Corporate indebtedness is also a worrying issue . In response to the coronavirus crisis, firms have also taken on more debt to cope with the reduced income and cash shortages, adding to the already high debt levels. Therefore, if the recovery is delayed, “liquidity pressures may morph into insolvencies,” according to the IMF’s Global Financial Stability Report . So far, the policy support limited the scale of bankruptcies. Still, the economists from the Bank of International Settlements predict that bankruptcies in advanced economies could rise from the baseline in 2019 by around 20 percent in 2021.

Implications for Gold

What does all the above mean for the gold market? Well, the improved near-term outlook for the US economy is not good news for the yellow metal. However, the slower expected growth in 2021 and beyond is becoming more positive. Notably, “the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks”. In other words, the uncertainties persist, which should support the safe-haven demand for gold as a result .

It is perhaps why the IMF expects that the precious metals index will increase by 28.4 percent in 2020 and by an additional 10.4 percent in 2021 amid the elevated risks and dovish monetary policy .

The growing coronavirus cases, subsequent worries about the already fragile recovery, US presidential election uncertainty have recently pushed gold prices above $1,900, as one can see in the chart below.

What is most important here is that the price of gold managed to rise above $1,900 again, despite the declining odds of a new fiscal stimulus before the elections and the resulting S&P 500 Index decrease. Gold’s decoupling from the stock market would increase its role as a safe-haven asset.

However, it might be the case that gold is just hovering around $1,900 right now, and it needs a fresh catalyst to continue its rally . Who knows, maybe the US presidential elections, which are likely to be contested, will provide such a trigger? We will elaborate on this later – stay tuned!

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For a look at all of today’s economic events, check out our economic calendar.

 

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Further Price Pressure as the USDX Is About to Rally

Gold, mining stocks, and the USD Index have not been doing much recently. However, yesterday, this “inactivity” took quite a decisive shape, and unfortunately, things are not looking good for gold.

As you are all aware, gold tends to move conversely to the USD Index. Therefore, it’s useful to focus on the latter for signs that would influence the former. So, what does the current USDX outlook look like?

Well, it looks like the USDX is about to rally. It broke above its medium-term resistance line and verified this breakout. This verification took the form of a decline based on a more recent short-term breakout, which seems to have ended.

From a medium-term point of view, since the market had to correct before moving higher again, it’s no wonder that it had to do the same from a short-term perspective as well.

Based on the chart above, the outlook for the USD Index is bullish.

But, before we move to gold, please pay attention to the shape of the last candlestick. The USDX moved relatively lower, almost touching the declining support line.

Considering the above, one might have expected to see a visible daily gain in gold – maybe with a small correction, but again, with a substantial gain in terms of daily closing prices. So, did we witness something like that?

Not really.

Gold was marginally up, which is a notable bearish indication. The bearish confirmation comes from the fact that gold tried and failed to break above the declining resistance line.

Above the resistance line, gold took only a small comeback from the USD Index that made gold invalidate its intraday breakout. It is a clear sign of weakness.

And you know what precious metals sector sign of weakness is even more visible? It’s yesterday’s action in gold and silver mining stocks .

Namely, miners have declined adamantly– much more visibly than gold. This type of underperformance is what precedes the decline. Or, more precisely, it is often the very initial part of a more significant decline.

That is a perfect cherry on the bearish analytical cake that we’ve “baked” in our previous analyses. Over a week ago , we wrote that the situation was reminiscent of the earlier cases, marked with blue ellipses. Namely, the GDX ETF moved only a tad higher, which was the final top for at least some time. We argued that the strong daily rally that started with a bullish price gap was not so bullish after all. Indeed, over a week later, once again, miners are visibly lower.

Of course, based i.a. in the USDX situation, most probably, this is not the end of the miners’ decline, but rather, it is just the beginning. The situation relative to the 50-day moving average (marked with blue) confirms it. After all, back in March, miners moved slightly above their 50-day moving average only to plunge shortly after that, and the current situation is the only similar case to the above. There were no other cases when the miners broke below this MA and then moved back up slightly above it, declining once again afterward.

And due to the above, if the situation wasn’t bearish enough, the Stochastic indicator based on the GDX ETF has just flashed a clear sell signal.

All in all, currently, the outlook for the precious metals market remains bearish.

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For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

ParagonEX Dynamic Announces Groundbreaking Arabic Trading Tools At Virtual Expo

The company has established trust in the Fintech sector as a reliable software provider that guarantees a positive experience. Each solution offered by ParagonEX Dynamic is carefully developed, ensuring businesses get feature-rich, state-of-the-art tools that drive business growth. Soon, the company will showcase its groundbreaking new Arabic trading tools at the Finance Magnates Virtual Summit 2020.

A Strong Focus On The Arabic Market

There are 420 million Arabic speakers worldwide and Arabic traders are increasingly focused on new technologies. Fintech in particular, has become the focus for significant attention in the UAE and MENA more broadly, with more than $100 million of capital raised to date for

finance-related tech startups. The Arabic market is one familiar to ParagonEX Dynamic who strive to provide tailored trading products for customers in this region. The latest addition is an update to the ForexPro platform.

ParagonEX Dynamic customers are now able to easily experience the Arabic market without additional financial investments. The company translated the trade room and all required widgets for the ForexPro platform using Arabic market professionals. Adding a major market to its vast portfolio in the midst of a difficult year, is a big achievement for the company.

“We are eager to showcase the functionality of our newly added tools.” said CEO Amnon Goldrat. “We are already getting so much positive feedback from our clients in the region and we are keen to take more steps to meet demand.”

An Opportunity to Connect

To showcase its new Arabic trading tools, amongst others, ParagonEX Dynamic will be exhibiting at the Finance Magnates Virtual Summit 2020, scheduled for November 18. Finance Magnates’ annual London Summit has taken a virtual twist this year due to the ongoing pandemic.

During times when in-person contact is limited, businesses need to maximise their online reach. That means using the virtual world to build partnerships, engage with other businesses and learn about the latest developments in the sector. The Finance Magnates Virtual Summit 2020 will offer ParagonEX Dynamic the perfect platform to engage with a global audience, industry leaders and influencers. It will also offer opportunities for the company to showcase its innovative business solutions through public and private chat, video and audio calls, one-on-one meetings, and Q&A sessions.

The event will bring together 3,500+ attendees, 130+ speakers and 150+ exhibitors. Therefore, it is a valuable space to reach out to businesses involved in Retail & Institutional Online Trading, Digital Assets & Blockchain, Payments and FinTech & Innovation.

What ParagonEX Dynamic will Highlight at the Summit

With a commitment to innovation, ParagonEX Dynamic is dedicated to anticipating rapid changes in the finance sector and pre-empting solutions. To demonstrate what sets the company apart, various services and solutions will be exhibited at the summit, such as:

Custom Trading Software Solutions

ParagonEX Dynamic offers white-label trading software that brokers and fintech service providers can customise. This versatile platform is powered by the latest technologies and has been designed to be easy to understand for traders of all levels of experience. Among its outstanding features is Social Trading, which allows traders to learn from experts and even copy trading strategies. The user-friendly Portfolio Manager helps traders implement various portfolio strategies to manage risk and maximise chances of success.

The platform can be further customized with the integration of MetaTrader 5, for brokers who offer multiple trading instruments. The All-in-One CRM provides a satisfying interaction with the brokerage or fintech firm. While partners can effortlessly integrate affiliate networks, with rich features like tracking automation. Most importantly, integrating preferred payment providers is completely hassle-free.

To enhance retention and to lower churn rates, businesses can also offer value-added services through the platform. These services include:

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Additional Services

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ParagonEX Dynamic aims to enhance each client’s competitive edge by consistently exceeding client expectations. Contact the team at the Finance Magnates Virtual Summit 2020 or via their website below.

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GOLD Bears Continue to Dominate

Gold is still bearish and I can see new drop coming at the POC zone if the price makes a retracement.

78.6-88.6 makes a good confluence with historical sellers. We can see the zone which also shows historical selling, so I expect the price to reject. The zone is 1915-1920. However there is still range present in the gold markets and the final target is 1882. If the market breaks lower than it will be a continuation of the downtrend. As fas as bears are concerned, even 1925 could be good for selling, but I doubt the price will get there today.

For a look at all of today’s economic events, check out our economic calendar.

 

Price of Gold Fundamental Daily Forecast – Rangebound as Fiscal Stimulus Deadline Looms

Gold futures are edging lower on Tuesday taking out yesterday’s low in the process as the rangebound market continues to be held hostage by Washington policymakers’ inability to come to an agreement as to the size and timing of the next U.S. fiscal stimulus package.

So far this week, the market is hovering just above the psychological $1900 level as caution spreads ahead of a deadline for agreement on a new U.S. coronavirus stimulus package and next month’s presidential election.

At 07:06 GMT, December Comex gold is trading $1905.60, down $6.10 or -0.32%.

The lingering choppy, two-sided trade in gold is really a reflection of the problem in the U.S. where politicians are putting their party platforms ahead of the needs of the people.

Gold is being supported by the hope of a stimulus deal ahead of the presidential elections on November 3, but some traders are starting to dispel that thought, while stating that a fresh round of U.S. fiscal stimulus is likelier to be a post-election event.

Then there’s the truth issue. Are we actually being told the truth about the negotiations – a couple of million here, a couple of million there? What’s the difference?

President Trump doesn’t seem to care about the stimulus. Two weeks ago, he called for an end of the negotiations and for Republican Senators to focus on the affirmation of his Supreme Court nominee. He then came back later with suggestions to piecemeal the package.

Trump is focused on his reelection campaign, seemingly conceding that the money won’t be in the hands of voters before the election. Furthermore, if he loses the election then what difference does it make to him if people get additional stimulus measures.

Besides, post-election stimulus is not guaranteed either because the Democrats are likely to save their bullets for an even bigger stimulus package in 2021.

Short-Term Outlook

Let’s start by saying I believe the longer-term up trend is fully supported, but the short-term outlook is very shaky due to the lack of clarity from Washington.

We may see some heightened volatility on Tuesday because after all, it is the deadline set by House Speaker Pelosi.

Pelosi and Treasury Secretary Steve Mnuchin “continued to narrow their differences” about the package, her spokesman Drew Hammill said.

Pelosi hopes that by the end of Tuesday there will be “clarity” on whether a stimulus bill can be passed before the November 3 election, he wrote on Twitter.

I think there are too many variables out there to produce a major rally in gold if a stimulus deal is made. How big will it be? When will the money be distributed? But we’re likely to see a knee-jerk rally if the U.S. Dollar falls on the news.

I believe that gold’s downside will be limited if there is no deal and negotiations are called off. This is because investors will be counting on a new fiscal deal after the election.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Prediction – Prices Edge Higher on Strong Homebuilder Index

Gold prices continued to consolidate and attempted to move higher as the dollar declined. US yields moved higher which weighed on gold prices following a stronger than expected US Homebuilder Index. Concerns over the US general election and a surge in coronavirus cases in the UK have helped buoy the yellow metal. Gold volatility has eased and is currently trading near the lowest levels seen since the pandemic started to spread in February. Currently, gold “at the money” implied volatility is trading just shy of 21%.

Trade gold with FXTM

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Technical analysis

Gold prices edged higher trading sideways and making little headway. Prices remain above short term support is seen near the 10-day moving average at 1,902. Resistance is seen near the 50-day moving average at 1,924. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal on the upper end of the neutral range. Medium-term momentum remains neutral as the MACD histogram prints in the black with an upward sloping trajectory that points to a slow trend higher.

Home Building Index Surges

Homebuilders continue to see expanding demand and are struggling to keep up with housing starts. The Homebuilder sentiment set a record high for the second month in a row, jumping to 85 in October on the NAHB/Wells Fargo Housing Market Index. September and October are the first two months the index has ever been above 80. This is a diffusion index with levels above 50 showing an expansion. The index stood at 71 in October 2019. All three components of the index either set records or matched their highest readings. The current sales conditions rose 2 points to 90. Sales expectations in the next six months increased 3 points to 88, and buyer traffic was unchanged at 74.

Gold Price Forecast – Gold Markets Give Back Early Gains

Gold markets rallied a bit during the trading session on Monday, breaking above the 50 day EMA quite decisively, but gave back those early gains to form a less than impressive candlestick. This suggests that gold still has further to go to the downside and quite frankly if the US dollar strengthens, that will be the main reason. While we have seen this market drift lower over time, I do not necessarily think that gold is something that you should be selling, because quite frankly there is a lot of risk out there and that is of the way gold works.

Gold Price Predictions Video 20.10.20

To the downside, the $1850 level is an area where we could be seen a certain amount of support in the future, and it does make a decent target if you were in fact to short the gold market. However, I do not think that shorting is the best way to go as the longer-term fundamental certainly do look like they are going to be good for gold. Below the $1850 level, we have the massively important $1800 level which has previously been the scene of a major breakout, and it is more than likely going to be an area where we see a bit of “market memory” come back into play.

Beyond that as well, we have the 200 day EMA which is approaching that level. It is because of this that I think somewhere between $1800 and $1850 we will find the buyers return into this market to continue the longer-term uptrend. I do not like trading against the overall trend, so I am perfectly content to simply look for value in gold and take advantage of it slowly, building up a bigger position as the market extends gains.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Comes Back to the Bearish Territory

Nasdaq is still below dynamic and horizontal resistance

SP500 is on a good way to break crucial levels and go higher

DAX sharply bounces from the 12960 points

Dollar Index ignores the inverse head and shoulders and creates a flag. Situation here is bearish

EURUSD are flirting with important dynamic resistance

GBPUSD are one step from breaking 1,3 – the most important level in the past few weeks

AUDUSD with a small bullish correction but the main sentiment is very negative

EURAUD makes another attempt to escape from the long-term rectangle

EURCHF breaks crucial support and later tests it as a resistance. Pretty standard price action move

Gold tries to go higher but the upper line of the pennant looks well defended

Silver Price Daily Forecast – Silver Starts The Week On A Strong Note

Silver Video 19.10.20.

Silver Attempts To Gain More Momentum Above The 50 EMA

Silver has managed to get above the resistance at the 50 EMA at $24.55 and is trying to gain additional upside momentum as the U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index declined below 93.50 and is heading towards the nearest support level at 93.00 on hopes for a new coronavirus aid package deal. If the U.S. Dollar Index gets to the test of the 93 level, silver will get more support. Weaker dollar is bullish for silver as it makes it cheaper for buyers who have other currencies.

Meanwhile, gold is trying to settle above its 50 EMA at $1905. At this point, gold failed to develop material upside momentum but maintains solid chances to continue its upside move. If gold gets to the test of the next resistance at $1930, silver and other precious metals will get additional support.

Gold/silver ratio declined below the support at the 20 EMA at 77.95 which is bullish for silver. The next support level for gold/silver ratio is located at the recent lows near 75.50. A move towards this level will be a bullish development for silver.

Technical Analysis

silver october 19 2020

Silver is currently trying to get more momentum above the support at the 50 EMA at $24.55. If this attempt is successful, silver will head towards the next resistance level at the recent highs at $25.55.

Along the way, silver may face some resistance near the highs of today’s trading session at $25.00. If silver moves above the resistance at $25.55, it will quickly get to the test of the next resistance level at $25.85.

On the support side, the nearest support level for silver is located at $23.90. A move below this level will open the way to the test of the next support at $23.30.

From a big picture point of view, silver managed to get sufficient support near $24.00 and continues its upside move. If the U.S. dollar remains weak, silver will have good chances to get above the recent highs at $25.55.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Renewed Optimism Over Stimulus Package Proving Support

Gold futures are trading higher on Monday with the move being driven by a weaker U.S. Dollar after investors turned optimistic about a new stimulus deal ahead of next month’s U.S. presidential election following comments by U.S. House Speaker Nancy Pelosi.

Pelosi said Sunday that differences with the Trump administration persist over a far-reaching aid package, but she was optimistic that Congress could pass a bill before Election Day on November 3.

At 13:01 GMT, December Comex gold futures are trading $1915.40, up $9.00 or +0.47%.

After posting a relatively flat trade the last three sessions, gold appears to be ready to resume its recent upside bias amid early session news that the elusive fiscal stimulus package is still a possibility before the U.S. election.

In my opinion, this really isn’t news because the market has been pricing in a deal for about a month although no one is certain over the size of the deal at this time. Furthermore, I don’t think it’s going to be possible to get any stimulus money into the hands of the people who need it until after November 3.

I really don’t know if they are going to agree in principal and tweak the deal over the next couple of weeks, or if this will be a complete package. It’s difficult to assess at this time because policymakers have placed politics ahead of the American people.

We do know that additional stimulus will be bad for the U.S. Dollar, but good for gold prices. I think the terms of the deal, especially the size of it, could determine how high gold moves over the short-run.

It is of our opinion that positive news over stimulus would trigger a breakout over the recent main top at $1939.40 and likely fuel a rapid rally into $1970.10 to $1998.20. At that point, the market could become rangebound until another deal is reached.

The so-called “other deal” will likely be determined by whether Trump is re-elected or Biden wins the election. If Trump wins then expect more of the back and forth negotiations. If Biden wins then look for an even bigger stimulus package early next year, especially if the Democrats sweep the house and the Senate.

Daily Forecast

An agreement on a stimulus package will be good for gold over the short-term, but gains will likely be capped quickly, as the economy will likely demand more as rising coronavirus cases will likely continue to threaten to derail the economic recovery.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Weekly Forecast – Bullish Traders Patiently Waiting for Catalyst

Gold futures posted their first weekly decline in three weeks, as fading chances of a U.S. stimulus package before the November 3 presidential election dented the dollar-denominated metal’s appeal as an inflation hedge, while increasing the appeal of the safe-haven U.S. Dollar.

While sentiment for gold remains bullish over the long-run, without a strong short-term catalyst, it looks like it is going to have trouble sustaining a rally. The short-term catalyst seems to be another fiscal stimulus aid package. Without the stimulus bill, gold prices could drift sideways to lower over the near-term.

Last week, December Comex gold futures settled at $1906.40, down $19.80 or -1.03%.

One thing we did learn late last week is that better than expected economic data could help support gold if it weakens the U.S. Dollar. On Friday, U.S. retail sales data came in better-than-expected, pressuring the greenback while underpinning gold. However, gold did give back some of those gains after U.S. industrial production fell more than expected.

As far as a financial aid deal is concerned, Democrats and Republicans seemed to agree on a U.S. stimulus deal before Election Day even as coronavirus cases continue to rise and a labor market recovery stalls.

The latest COVID-19 news reveals that fresh restrictions to combat COVID-19 have been introduced across Europe, and the U.S. Midwest is battling spikes in new cases, threatening to derail the country’s economic recovery from the coronavirus shock.

This news is potentially bullish for gold prices if it encourages U.S. policymakers to move faster toward passing a stimulus bill, but so far it hasn’t been able to appeal to their sense of urgency.

Weekly Forecast

Despite the lower weekly close, the sideways trade suggests gold investors are still anticipating a stimulus deal despite the current stalemate in Washington. However, they probably accepted that it won’t be coming before the November 3 election.

We’ve seen weakness, but we haven’t seen a price crash which probably means the longer-term bulls are buying on weakness or the dips. This further supports the notion that all it is going to take is a catalyst to trigger a breakout to the upside.

Investors are fairly certain the stimulus is coming. They just don’t know when or how big the financial aid package will be. If you’re a short-term trader, it may be a good idea to keep your powder dry until after the election. If you’re a long-term investor then continue to accumulate gold when it trades at a value area.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – U.S Politics, COVID-19, Brexit, and Private Sector PMIs in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 23rd October. In the week prior, 56 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

On Tuesday, Wednesday, and Thursday, housing sector figures for September are in focus.

With mortgage rates hovering close to historic lows, the numbers are unlikely to have a material impact on the Dollar.

On Thursday, however, U.S jobless claims figures will influence ahead of private sector PMIs on Friday.

October’s prelim services, manufacturing, and composite PMIs are due out at the end of the week.

Expect the Services PMI to be the key driver. The markets will be looking for a pickup in service sector activity…

Away from the economic calendar, we are just over 2-weeks away from the U.S Presidential Election. Wednesday’s final live televised Presidential debate will garner plenty of attention as will chatter from Capitol Hill. We can also expect increased interest in the Senate Election polls.

The Dollar Spot Index ended the week up by 0.67% to 93.682.

For the EUR:

It’s also a relatively busy week ahead on the economic data front.

On Tuesday, German wholesale inflation figures are due out ahead of a busier 2nd half of the week.

On Thursday, Germany is back in focus, with November consumer climate figures due out.

Prelim October private sector PMIs from France, Germany, and the Eurozone will be the key drivers on Friday, however.

We can expect plenty of sensitivity to the numbers. A new spike in new COVID-19 cases in France and other parts of the EU may have impacted activity at the start of the quarter.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week down by 0.91% to $1.1718.

For the Pound:

It’s a busy week ahead on the economic calendar.

The markets will have to wait until Wednesday, however, for the first set of numbers.

Inflation figures for September are due out ahead of CBI industrial trend orders on Thursday.

We would expect the Pound to be sensitive to the inflation figures ahead of a busy end to the week.

On Friday, retail sales figures for September and prelim October private sector PMIs will provide direction.

With the BoE open to negative rates, dire numbers will test support for the Pound.

Of greater influence in the week, however, will be Brexit and COVID-19 news.

The GBP/USD ended the week down by 0.93% to $1.2915.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

At the start of the week, wholesale sales figures for August are in focus on Monday.

We don’t expect too much influence from the numbers, however.

On Wednesday, September inflation and August retail sales figures will provide direction.

From elsewhere, expect GDP numbers from China and prelim private sector PMIs from the Eurozone and the U.S to also influence.

Away from the economic calendar, risk appetite will likely be dictated by COVID-19 and the U.S Presidential Election polls. There’s also the final presidential debate to consider on Wednesday.

The Loonie ended the week down by 0.52% to C$1.3189 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Australia to provide the Aussie with direction.

The lack of stats will leave the Aussie Dollar firmly in the hands of market risk sentiment in the week.

Expect China’s GDP numbers and prelim PMIs from the Eurozone and the U.S to influence

On the monetary policy front, the RBA meeting minutes at the start of the week will garner interest. There has been the talk of an RBA move next month, the minutes could reveal what is on the cards…

The Aussie Dollar ended the week down by 2.20% to $0.7081.

For the Kiwi Dollar:

It’s also a relatively busy week ahead on the economic calendar.

In the 1st half of the week, 3rd quarter business confidence figures are due out. A pickup in confidence would provide support to the Kiwi ahead of a busy Friday.

Trade data for May and 3rd quarter inflation figures will influence at the end of the week.

While the stats will provide direction, however, economic data from China and COVID-19 will likely be the key drivers.

The Kiwi Dollar ended the week down by 0.96% to $0.6602.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Trade data for September will draw interest at the start of the week ahead of inflation at the end of the week.

We don’t expect the numbers to have too much influence on the Yen, however.

The key driver for the Japanese Yen, however, will be COVID-19 news and U.S politics.

The Japanese Yen ended the week up by 0.21% to ¥105.40 against the U.S Dollar.

Out of China

It’s a busy week ahead on the economic data front.

3rd quarter GDP numbers due out on Monday will be the key driver for the Yuan and market risk sentiment.

September’s industrial production, retail sales, and unemployment figures will also influence.

Barring particularly dire numbers, the fixed asset investment numbers should have a muted impact.

On the monetary policy front, the PBoC is in action on Tuesday. The markets are expecting the PBoC to leave loan prime rates unchanged. Any unexpected rate cut could spook the markets…

The Chinese Yuan ended the week down by 0.04% to CNY6.6976 against the U.S Dollar.

Geo-Politics

UK Politics:

On Friday, Boris Johnson announced that Brexit negotiations were over. Downing Street added the EU chief negotiator Barnier does not need to return to London in the week ahead.

Following the EU’s attempts to leave the ball in Britain’s court, with Fisheries a key issue, it now rests with the EU to compromise. Johnson has been clear that it would not leave fishing access unchanged, despite Macron’s attempts to strong-arm Britain into yielding.

For French fishermen, it would ultimately mean no access to UK fisheries should Britain leave without a deal…

Also at the start of the week, the British Prime Minister is due to announce more containment measures. With the number of new COVID-19 cases continuing to rise, further restrictions would be Pound negative.

U.S Politics

After last week’s individual town hall sessions, the final live televised debate will take place on Wednesday.

It will be a chance for Trump to narrow the gap ahead of the 3rd November Election.

If past performance is any indicator of future performance, however, it could just give Biden a greater edge.

As the markets begin to write-off a Trump victory, the focus will likely shift to the Senate Elections.

A blue wave is expected that would support further stimulus in the New Year.

Price of Gold Fundamental Daily Forecast – Short-Term Cap Expected, but Underpinned Over Long-Run

Gold futures edged lower on Friday, while posting its first weekly decline in three weeks as fading chances of a U.S. stimulus agreement before the November 3 presidential election weighed on the precious metal’s appeal as an inflation hedge.

Furthermore, Friday’s price action suggests that without a stimulus bill in place over the next few weeks, gold will be almost entirely influenced by the direction of the U.S. Dollar.

On Friday, December Comex gold settled at $1906.40, down $2.50 or -0.13%.

With various monetary stimulus packages still in place, those investors with a longer-term perspective see a well-supported market, but without a short-term catalyst like a fiscal stimulus package, the market will struggle to breakout to the upside.

Mixed US Economic Data Drives Sideways Outlook

On Friday, a stronger-than-expected U.S. retail sales report lifted appetite for riskier assets, but factory production unexpectedly fell in September.

U.S. retail sales accelerated in September, rounding out a strong quarter of economic activity, but the recovery from the COVID-19 recession is at a crossroads as government money runs out and companies continue to layoff workers.

Retail sales jumped 1.9% last month as consumers bought motor vehicles and clothing, died out and splashed out on hobbies. That followed an unrevised 0.6% increase in August. Economists polled by Reuters had forecast retail sales would rise 0.7% in September.

Excluded automobiles, gasoline, building materials and food services, sales increased 1.4% last month after a downwardly revised 0.3% drop in August.

These so-called core retail sales correspond mostly closely with the consumer spending component of gross domestic product. They were previously estimated to have dipped 0.1% in August.

Short-Term Outlook

I think gold prices are likely to remain under pressure until a fiscal stimulus deal is reached, but I don’t think prices will collapse because of the presence of long-term investors. Meanwhile, gains are likely to be capped as long as investors continue to place money into the safe-haven U.S. Dollar.

The dollar could continue to gain over the near-term as long as there is fear over the outcome of the election. Rising COVID-19 and its potential impact on the economic recovery will also be a factor driving the dollar higher and pressuring dollar-denominated gold.

The pressure from the election will be lifted after November 3, but a second-wave of COVID-19 should continue to raise fears over the economic recovery. That fear will only be lifted if there is a fiscal stimulus package.

For a look at all of today’s economic events, check out our economic calendar.

The Weekly Wrap – Brexit, COVID-19, and U.S Politics Drive the Majors

The Stats

It was a busier week on the economic calendar, in the week ending 16th October.

A total of 56 stats were monitored, following 43 stats from the week prior.

Of the 56 stats, 24 came in ahead of forecasts, with 21 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 20 of the stats also reflected an upward trend from previous figures. Of the remaining 36 stats, 27 reflected a deterioration from previous.

For the Greenback, it was back into the green after 2 consecutive weeks in the red. The Dollar Spot Index rose by 0.67% to 93.682. In the week ending 9th October, the Dollar Spot Index had fallen by 0.87% to 93.057.

Market risk appetite waned in the week. There were a number of factors driving demand for the Dollar. A lack of progress towards a U.S stimulus bill and a spike in COVID-19 cases were front and center in the week.

Disappointing economic data and Brexit woes also supported the demand for the safety of the Dollar.

Out of the U.S

It was a relatively busy week on the economic data front.

Inflation figures drew interest early in the week. In the 2nd half of the week, however, jobless claims and retail sales figures were the key drivers. Prelim October consumer sentiment figures were also in focus late on Friday.

In the week ending 9th October, initial jobless claims stood at 898k, which was up from 845k from the week prior. The numbers reinforced the view that the labor market recovery had stalled.

A combination of dire labor market conditions, rising new COVID-19 cases, and a lack of further stimulus was a bad combination.

At the end of the week, retail sales impressed, however. In September, retail sales rose by 1.9%, with core retail sales rising by 1.5%. Economists had forecasted increases of 0.5% and 0.7% respectively.

Aligned with the retail sales figures was a further pickup in consumer sentiment. The Michigan Consumer Sentiment Index rose from 80.4 to 81.2 in October, according to prelim figures. The Expectations Index increased from 75.6 to 78.8.

The only negative on the day was an unexpected 0.6% fall in industrial production.

In the equity markets, the NASDAQ rose by 0.79%, with the Dow and S&P500 gaining 0.07% and 0.19% respectively.

Out of the UK

It was a relatively busy week on the economic data front.

Key stats included August unemployment rate and employment change and September claimant count figures.

While claimant counts came in lower than expected, employment fell by more than expected over the 3-months to August.

A 153k fall in employment led to an increase in the unemployment rate from 4.1% to 4.5%.

While the stats provided direction, it was ultimately Brexit and COVID-19 that sank the Pound in the week.

A continued rise in new COVID-19 cases and a new round of containment measures were Pound negative.

More significantly, however, was a lack of progress towards a Brexit agreement, with the EU pushing for more talks next week.

On Friday, Boris Johnson announced that it was time to prepare for a no-trade deal Brexit unless the EU changed its stance. Downing Street also stated that there was no point in EU negotiator Michel Barnier returning to London in the week ahead.

In the week, the Pound fell by 0.93% to $1.2915. In the week prior, the Pound had risen by 0.78% to $1.3036.

The FTSE100 ended the week down by 1.61%, partially reversing a 1.94% gain from the previous week.

Out of the Eurozone

It was a relatively busy week on the economic data front.

Early in the week, key stats included ZEW Economic Sentiment figures for the Eurozone and Germany.

The indicators flashed red for October. Germany’s Economic Sentiment Indicator fell from 77.4 to 56.1, with the Eurozone’s falling from 73.9 to 52.3. A lack of progress on Brexit and jitters over the U.S Presidential Election weighed in October.

Mid-week, industrial production figures for the Eurozone came up short of expectations, rising by just 0.7%. In July, production had jumped by 5.0%.

In the 2nd half of the week, Eurozone trade data and finalized inflation figures for September were in focus.

Inflation figures reaffirmed market concern over deflationary pressures. Trade data also failed to impress, with the Eurozone’s trade surplus narrowing from €27.9bn to €14.7bn in August.

While the stats provided direction, a marked increase in new COVID-19 cases weighed on the EUR in the week. France and other member states were forced to reintroduce containment measures amidst the 2nd wave.

For the week, the EUR fell by 0.91% to $1.1718. In the week prior, the EUR had risen by 0.94% to $1.1826.

For the European major indexes, it was a bearish week. The CAC40 and EuroStoxx600 fell by 0.22% and by 0.77% respectively, with the DAX30 declining by 1.09%.

For the Loonie

It was a quiet week on the economic data front.

Key stats included August’s foreign security purchases and manufacturing sales figures.

Neither set of numbers had an impact, however, as the fresh spike in new COVID-19 cases weighed on market risk sentiment.

The threat of a reintroduction of lockdown measures pegged back crude oil prices in the week.

In the week ending 16th October, the Loonie fell by 0.52% to end the week at C$1.3189. In the week prior, the Loonie had risen by 0.87%.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 16th October, the Aussie Dollar slid by 2.20% to $0.7081. The Kiwi Dollar ended the week down by a more modest 0.96% to $0.6602.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats consumer confidence and employment figures.

It was a mixed bag for the Aussie Dollar. While consumer confidence continued to improve, employment figures were somewhat disappointing.

The unemployment rate rose from 6.8% to 6.9%, driven by a 29.5k fall in employment.

For the Aussie Dollar, it was ultimately market sentiment towards monetary policy and risk aversion that did the damage. There is the talk of an RBA next month…

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included electronic card retail sales figures and business PMI numbers.

The stats were Kiwi Dollar positive, with retail sales up by 5.4% and the PMI rising from 50.7 to 54.0.

While positive, however, market risk aversion pegged the Kiwi Dollar back in the week.

For the Japanese Yen

It was also a relatively quiet week on the economic calendar.

August’s core machinery orders and finalized industrial production figures were in focus.

The stats were skewed to the negative in the week. Core machinery orders rose by just 0.2%, following a 6.3% jump in July. Industrial production was revised down from 1.7% to 1.0%.

Ultimately, however, it was market risk sentiment that delivered the support for the Yen.

The Japanese Yen rose by 0.21% to ¥105.4 against the U.S Dollar. In the week prior, the Yen had fallen by 0.31%.

Out of China

It was a relatively busy week on the economic data front following last week’s holiday.

Key stats included September’s trade data and inflation figures, which were skewed to the negative.

China’s U.S Dollar trade surplus narrowed from $58.93bn to $37.00bn, driven by a 13.2% jump in imports. Exports rose by a more modest 9.9%.

Inflationary pressures also softened at the end of the quarter. China’s annual rate of inflation softened from 2.4% to 1.7% in September. Wholesale deflationary pressures picked up marginally. The producer price index fell by 2.1%, following a 2.0% decline in August.

In the week ending 16th October, the Chinese Yuan slipped by 0.04% to CNY6.6976. In the week prior, the Yuan had risen by 1.42%.

The CSI300 rose by 2.36%, with the Hang Seng gaining 1.11%.

Gold Weekly Price Forecast – Gold Pulls Back for The Week

The gold markets continue to be noisy in general, as we still have not decided what is going on with stimulus in the United States. The markets are ripe for continued pullbacks, mainly because the US dollar continues to see a bit of a bid, mainly due to the fear trade out there, and of course the EU is seeing more virus numbers and as a result the markets are selling the Euro.

Gold Price Predictions Video 19.10.20

The overall structure is one of a potential bullish flag, and this could also ignite more potential buying. The markets pulling back would also find plenty of value hunters underneath, especially near the $1850 level, where the market bounced from before. The $1800 level is an area that is even more important, as it was the scene of a major breakout. The area should continue to see “market memory.” The 50 week EMA is approaching that region as well, and this should continue to offer yet another reason for buying.

The market is likely to go towards the $2000 level given enough time, but between now and the election, I believe that we will see more of a sideways move, perhaps with a slow downward tilt. However, this should be thought of as a potential value play, as stimulus will certainly come after the election, and central banks of course continue to be very loose with monetary policy worldwide. This drives money into “hard assets.” Gold is one of the best markets to avoid devaluation of the fiat currencies around the world. The market is not one that I have any interest in selling.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Prediction – Prices Consolidate Despite Robust Retail Sales

Gold prices barely moved on Friday inching lower and trading in a very tight range. The dollar declined slightly after rallying on Thursday as US yields consolidated.  The movement in the dollar and yield came despite a stronger than expected US retail sales report, that seemed to be countered by a slight dip in US consumer confidence.

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Technical analysis

Gold prices edged lower trading sideways and barely moving on Friday. Prices remain above short term support is seen near the 10-day moving average at 1,902. Resistance is seen near the 50-day moving average at 1,927. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal on the upper end of the neutral range. Medium-term momentum remains neutral as the MACD histogram prints in the black with an upward sloping trajectory that points to a slow trend higher.

Retail Sales Comes in Strong than Expected

US retail sales came in strong than expected as consumers accelerated their buying habits. US retail sales increased by 1.9% month over month. Expectations had been for retail sales to increase 0.7%, up from a 0.6% rise in August. Excluding autos, the gain amounted to 1.5%, which also was better than the 0.4% estimate.

Gold Price Forecast – Gold Continues to Dance Around 50 Day EMA

Gold markets went to the upside during the trading session on Friday, but then turned around to break below the 50 day EMA. All things being equal, the 50 day EMA is relatively sideways, which shows that there is no real decisive momentum one way or the other, and it is likely that we continue to grind sideways in the short term. Longer-term, I am much more bullish on gold than anything else, due to the fact that the central banks around the world will continue to liquefy markets, which of course drives up the demand for hard assets as fiat starts to fall.

Gold Price Predictions Video 19.10.20

The gold markets have quite a bit of support underneath, near the $1850 level. Ultimately, I think that even if we break down through their it is likely that we are going to go looking towards the $1800 level. That is an area that was the scene of a recent break out, and therefore there should be a significant amount of “market memory” in that area that should now offer support. Because of this, I would be looking for some type of bounce to take advantage of.

That being said, I like the idea of finding value in a market that will clearly go higher over the longer term all things being equal. In the short term though, the market is starting to weigh in the idea of stimulus being delayed, so the US dollar has had a bit of a reprieve. With that in mind, I buy dips but I do it in small bits and pieces so I can build up a larger position.

For a look at all of today’s economic events, check out our economic calendar.

Silver Price Daily Forecast – Silver Tries To Get Above The 50 EMA

Silver Video 16.10.20.

Silver Continues Its Attempts to Gain Additional Upside Momentum

Silver is testing the nearest resistance level at the 50 EMA at $24.55 as the U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index failed to settle above the resistance at its 50 EMA at 93.75 and pulled back. The nearest support for the U.S. Dollar Index is located at the 20 EMA at 93.55.

If the U.S. Dollar Index moves below this support level, it will gain additional downside momentum which will be bullish for silver. A weaker dollar is a positive catalyst for silver as it makes it cheaper for buyers who have other currencies.

Meanwhile, gold is roughly flat. Gold is testing its 50 EMA level at $1905 but has so far failed to develop material upside momentum. In case gold moves towards the resistance at the recent highs at $1930, silver and other precious metals will get additional support.

Gold/silver ratio is stuck between the support at the 20 EMA at 77.95 and the 50 EMA at 78.40. In case gold/silver ratio moves below the 20 EMA, it will gain additional downside momentum and head towards October lows near 75.50. This scenario will be bullish for silver.

Technical Analysis

silver october 16 2020

Silver is trying to settle above the nearest resistance level at the 50 EMA at $24.55. If this attempt is successful, silver will gain additional upside momentum and head towards the next resistance level at the recent highs at $25.55.

There are no material levels between $24.55 and $25.55 so this move may be fast. A successful test of the resistance at $25.55 will open the way to the test of the next resistance level at $25.85.

On the support side, the nearest support level for silver is located at $23.90. Yesterday, silver made an attempt to settle below this level, but quickly rebounded back above the $24 level.

If silver manages to settle below the support at $23.90, it will gain additional downside momentum and head towards the next support level at $23.30.

From a big picture point of view, silver’s upside trend remains intact. However, silver risks losing its general upside momentum if it fails to get above the 50 EMA.

For a look at all of today’s economic events, check out our economic calendar.

Daily Gold News: Gold Still at $1,900 as Markets Remain Indecisive

The gold futures contract gained 0.08% on Thursday, as it continued to fluctuate following Tuesday’s retreat below $1,900 price level. Recently gold was retracing a rally from around $1,800 to August 7 record high of $2,089.20 in reaction to U.S. dollar advance, among other factors. Then gold has bounced from the support level marked by mid-August local low of around $1,875, as we can see on the daily chart ( the chart includes today’s intraday data ):

Gold is unchanged this morning, as it is extending a short-term consolidation. What about the other precious metals? Silver lost 0.7% on Thursday and today it is 0.3% higher. Platinum lost 0.24% and today it is 0.7% lower. Palladium gained just 0.03% yesterday and today it is 0.7% lower. So precious metals are mixed this morning.

Yesterday’s U.S. Philly Fed Manufacturing Index has been better than expected, however Unemployment Claims and Empire State Manufacturing Index releases have been worse than expected. Today we will get the important Retail Sales release at 8:30 a.m., among others.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for today:

Friday, October 16

  • 5:00 a.m. Eurozone – Final CPI y/y, Final Core CPI y/y, Trade Balance
  • 8:30 a.m. U.S. – Retail Sales m/m , Core Retail Sales m/m
  • 9:15 a.m. U.S. – Industrial Production m/m, Capacity Utilization Rate
  • 10:00 a.m. U.S. – Preliminary UoM Consumer Sentiment, Business Inventories m/m

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Are We Entering Stagflation That Will Boost Gold?

Inflation is back. OK, not inflation, but inflation expectations. As the chart below shows, they plunged during the coronavirus crisis, but they have already recovered. Currently, and based on the inflation-protected Treasury yields, Mr. Market expects that inflation will be, on average, 1.5 percent in the next five years and 1.7 percent in the next ten years.

Meanwhile, the real bond yields have continued their downward trend. As the chart below shows, the yields of 5 and 10-year Treasury Inflation-Protected Securities plunged from around zero in January to around -1.15 in mid-September.

Do you already see the implications? Yes, you are right. The charts above show the rebound in inflation expectations and the sharp decline in real interest rates . Such a combination indicates that stagflation is coming . Or, at least, that investors worry about the simultaneous occurrence of stagnation and inflation .

To understand this better, let’s take a look at the chart below. It presents nominal Treasury bond yields. As you can see, they have remained in a sideways trend since April, even though inflation expectations have rebounded. So, the only reason why nominal interest rates did not increase in tandem with inflation expectations is that the growth expectations have declined. In other words, investors expect both economic slowdown and a rebound in inflation to occur simultaneously, i.e., stagflation.

These expectations are fueled by the coronavirus crisis and following supply-chain disruptions and shortages, the Fed’s new monetary regime that allows for overshooting the inflation target, and the significant expansion in the public debt and the broad money supply . Driven by the quantitative easing and the increase in bank deposits, the M2 money supply growth pace has increased from about 7 percent before the pandemic to about 24 percent in July, as the chart below shows.

The unprecedented spike in the broad money supply – and not only in the monetary base controlled by the central bank – is the reason why the coronavirus crisis was more inflationary than the Great Recession , and it can translate into higher price inflation in the future.

However, the money supply acceleration has been matched by a plunge in the velocity of money or the number of times a dollar is spent in the economy (see the chart below). So maybe there is nothing to worry about?

Actually, there is! You see, the velocity of money is a vague concept. It is defined as a nominal GDP divided by the money supply. So, it does not have a life of its own, and it is not defined independently of the other terms in the famous equation of exchange: M*V = GDP = P*(real GDP).

Hence, the velocity of money had to decline simply because the economy shrank, while the money supply expanded during the Great Lockdown (see the chart below). But it means that the money supply has been growing faster than the economy, which is a recipe for inflation, which is described precisely as „too much money chasing too few goods”.

And please note that in the aftermath of the Great Recession , the ballooning Fed’s balance sheet and monetary base were accompanied by slowing M2 money supply growth. Because of the financial crisis , loan growth declined sharply. In contrast, today, the banking system is in a healthier position, and commercial banks substantially expanded the credit creation.

Of course, the rise in the broad money supply was partially a result of companies’ drawing down on pre-arranged credit lines, not the irrational exuberance of the commercial banks (although government guarantees make banks to provide loans to many sub-marginal companies), but the end result is the same: the rapid expansion in the bank credit and the broad money supply. As the chart below shows, the total bank credit growth accelerated from about 5.3 at the beginning of the year to 11.3 percent in May. Hence, the risk of inflation is higher than in the aftermath of the economic crisis of 2008. It makes the current macroeconomic environment even better for gold.

To sum up, although the increase in the mere monetary base does not have to translate into higher inflation, the record fast expansion in the broad money supply is disturbing, and it increases the risk of inflation or stagflation sometime in the future. The supply chain distortions, ballooning federal debt , and more dovish Fed , which is eager to accept inflation above its 2-percent target for some time, also add to this risk. As higher inflation increases the appeal of gold as an inflation hedge , and decreases the real interest rates , the heightened stagflationary risk should support the gold prices.

Of course, the coronavirus crisis has also resulted in a massive drop in GDP growth and an increase in spare capacity that can keep consumer price inflation low for some time. However, when the economy recovers somewhat, while the large monetary and fiscal stimulus program continues, the broad money supply’s unprecedented fast growth could end up being inflationary after a certain lag. When gold sniffs out the smell of inflation, it should shine.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter . Once you sign up, you’ll also get a 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.