Golden Opportunities – Metal Prices Firm as Powell Pivots
The Kansas City branch of the Federal Reserve has been holding its summer symposium in Jackson Hole, Wyoming since 1981.
The annual event is attended by G-20 central bankers and has been the venue of several market moving monetary policy announcements over the years.
Last week was one of those meetings.
After nearly nine months of speculation about when US rates would start to ease, FED chief Jerome Powell used his keynote address to confirm the pivot to lower US rates.
The market response was swift with physical Gold and Silver prices spiking higher as US interest rates and the US Dollar slid to the lowest levels of the year.
As illustrated on Chart 1, the US Three-month T-Bill yield is now pricing in 37 basis points of easing by December.
For the week, USD Gold posted another close above $2500.00 after reaching a new all-time of $2531.00 on Tuesday. Gold priced in AUD fell by 1.6%, which mirrored the 1.7% rally in the AUD versus the USD.
Silver prices outperformed Gold for the second week in a row, as USD Silver tagged a one-month high of $29.88 and closed the week 2.8% higher.
AUD denominated Silver rose by 1.2% and looks set to reclaim the $45.00 handle.
Silver prices in both currencies have now joined Gold prices and are trading above their key 30-day moving averages.
Even though Mr. Powell’s pivot was fairly well telegraphed and largely expected, there was still some push back from the financial media.
For example, some analysts pointed to the fact that the US consumer inflation rate is near 3.4%, which is well above the FED’s target of 2.00% and easing rates often cause higher inflation.
Also, the FED will end its tightening cycle and start an easing cycle with Wall Street stock indexes at all-time highs, something that has never happened before in the history of capital markets.
Mr. Powell addressed these concerns during his speech but was laser focused on the weakening trend in the US labor market as the main concern for the US economy, and the primary reason for adjusting rates lower.
The FED’s view on the softening US jobs market was amplified worse after the US Bureau of Labor Statistics (BLS) released their 12-month Non-Farm Payroll revision last week.
As shown on Chart 2, the BLS revised the number of jobs created lower by a whopping 818,000, which means that over 20% of the new jobs announced during the monthly reports over the last 12 months never existed.
It’s worth noting that BLS has over 2,000 employees and a yearly budget of almost $700 million.
But yet with their combinations of complex seasonal adjustments and adaptive algorithms, they still managed to overstate the number of jobs created by over 20%, or by an average of more than 68,000 jobs per month.
It’s reasonable to believe that a weakening US employment market could increase market uncertainty and the risk of an economic recession.
A market environment of lower interest rates, low growth and rising inflation has historically been very positive for the prices of physical Gold and Silver.
Gold and Silver are typically used as a safe haven asset to protect an investment portfolio during uneven economic cycles.
A percentage of your long-term wealth creation strategy could benefit from the protection and stability that physical Gold and Silver have always offered.
By acting now, investors could take advantage of buying Gold and Silver at a relatively cost-effective price as the economic horizon becomes more uncertain.
