04-Oct (USAGOLD) — Gold fell through support at $1302/1300 in early New York trading. Stops were triggered, pushing the yellow metal to a 15-week low of 1280.50.
The most recent intraday leg-down seemed to be triggered by hawkish comments from Richmond Fed President Jeffrey Lacker. While Lacker is a nonvoter, he claimed he would have dissented at the last FOMC meeting because interest rates “need to rise.” He believes that disinflationary pressures associated with weaker energy prices and a stronger dollar have largely run their course.
We've made our living in 2016 buying Long-term Bonds and Gold on every day like this #Timestamped — Keith McCullough (@KeithMcCullough) October 4, 2016
We've made our living in 2016 buying Long-term Bonds and Gold on every day like this #Timestamped
— Keith McCullough (@KeithMcCullough) October 4, 2016
While Lacker’s crystal-ball may be suggesting that inflation is about to start picking-up, it’s just not being reflected in the data yet. Without the supporting data, the Fed is not going to hike.
The Fed has said repeatedly that the pace of rate hikes is going to be very gradual. The Wall Street Journal FedWatcher Jon Hilsenrath used the adjective “glacial” recently. That would suggest that if inflation does indeed start to heat-up, the Fed is likely to be behind the curve when it comes to tightening.
Incrementum’s recently published In Gold We Trust 2016 report suggests that asset price inflation may be about to spillover into consumer price inflation. If that scenario does unfold, the price of gold should appreciate considerably.
We believe that the radical reflation efforts of central banks are slowly beginning to succeed. As we have already noted in previous reports, this is however a dangerous game, as it is hardly possible to keep the momentum of inflation under control. — Incrementum
“We believe the time for investing in inflation-sensitive assets has come,” concludes Incrementum. But even if you remain an inflation skeptic, now may be the ideal time to start building into a gold position. Risks abound; not the least of which are growth risks.
Today the IMF downgraded the growth prospects of advanced economies. Their U.S. forecast for 2016 was slashed to 1.6% from 2.2% in July. Sub-2% growth is not really a compelling case for tighter monetary policy. In fact, heightened growth risks typically warrant easier policy.
In his latest Investment Outlook, bond guru Bill Gross of Janus notes that even as the Fed continues to rattle the tightening saber, other major central banks are heading in the opposite direction.
Our financial markets have become a Vegas/Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today’s highly levered world. – Bill Gross
Basically, global central banks will continue to push on the string, hawkish FedSpeak not withstanding. The cumulative balance sheets of the central banks have grown by more than $15 trillion since the Great Recession and there is little to suggest that a reversal of that trend is imminent.
“Investors/savers are now scrappin’ like mongrel dogs for tidbits of return at the zero bound. This cannot end well,” warns Gross. Meanwhile, even with the recent retreat, gold is still up more than 20% year-to-date. And as the Incrementum report points out, gold’s average annual performance since 2001 is 10.71%, outperforming “virtually every other major asset class between 2001 and 2016” even with the large correction off the 2011 highs!
