Gold Surprises as Powell Un-pivots!

Greetings!

Sticky inflation and strong US economic data over the past two months have caused Jerome Powell to postpone the pivot to lower interest rates that he telegraphed in mid-December. Markets are now betting that the Fed will cut rates three times in 2024 instead of the four to six cuts anticipated in January, and delay the start from March until May or June.

In this Gold Commentary, I analyze why inflation has been sticky since last fall, how the US economy has delivered better-than-expected performance, and why Jerome Powell has done a dizzying about-face on the Fed’s policy pivot. I link these factors to changes in Treasury yields and the dollar. And I detail how all this has rippled through into precious metals and what it means for gold and silver in coming months.

Sincerely,
Dana Samuelson
President

Fed Governor Chris Waller said that if inflation continues to fall then the FED in the next several months could be cutting interest rates I wonder if you could comment on whether you agree with uh fed Governor Waller on that that the answer is it depends on the reason you

Know if you’re if you’re uh if you’re cutting rates because you’re going back to normal that’s one thing if you’re cutting them because the econom is really weak so I you can imagine you have to know what the reason is to know whether it would be appropriate to do

Those two things at the same time what is going on with Jerome home pal and the Federal Reserve at the end of their December meeting in mid December the FED surprisingly telegraphed that we might get six bed rate heke Cuts in 2024 now it’s a scant eight weeks later and the

Markets are thinking we might get three half the amount promised or implied rather in December so what’s going on well in this gold market update for February 16th 2024 we’re going to drill down on what’s happening with the US economy interest rates the dollar and of course we’ll get into precious metals

Charts and uh talk about all the factors that have changed over the last 6 to8 weeks to make the FED hey take a step back on what’s happening with their projections for 2024 so I’m Dana Samuelson president of American Gold Exchange in Austin Texas and we will get

Into our update here’s Jerome Powell surprisingly in December the FED said hey we’re about ready to Pivot next year and now just eight weeks later well maybe not so fast so what’s happening to change that forecast in this gold market update we’re going to look at inflation

Which is getting a little sticky and the markets knee-jerk reaction to it the US economy remains resilient GDP and jobs remain pretty good which is causing the fed’s promised pivot to fade for fewer rate height Cuts expected now in 2024 meanwhile the US consumer which is

70% of our economy has got new record high credit card debt is the US consumer getting tapped out that’s a very important consideration also we’ll go through the latest charts for the US dollar treasury yields gold and silver and we have a silver special that we call Bullion with muscle let’s get into

Our charts let’s start with inflation because inflation has been driving the bus for the last couple of years with its Moon shot from zero all the way to about 9% and now back down so this is a chart of the Consumer Price in uh index going back to 2000 with headline CPI

Inflation in light blue and core CPI inflation in dark blue as you can see the current rate for headline CPI is 3.1% down from 3.4% in December core uh CPI however remains steady at 3.9% so inflation’s getting a bit stickier uh it’s holding up for the

Headline CPI right at about 3% a full percentage point above the fed’s 2% Target and that’s where the rub lies now this last mile may be a lot harder than the FED imagined so what’s going on with inflation by component let’s take a look food and Beverages and housing combined

Especially housing make 60% of the Consumer Price Index just a hair less with housing coming in at about 44 .4% you can see since October we have seen food and beverages drop about 70 basis points from 3.32% to 2.55% while housing has dropped about 65

Basis points from 5 and a qu% down to 4.6% now these numbers continue to diminish which is good I do think that the market kneejerk reaction we got to a little bit hotter than expected inflation and the components uh year onye not month on month year on year

This week was a bit of an overreaction meanwhile we’ve got headline CPI holding uh coming down from about 3.35 5% specifically to 3.09% over the last month and core CPI edging just a bit lower only about 7/10 of a one point 7 hundreds of a point rather so

Core CPI is holding steady meanwhile just today we got wholesale prices the producer price index and they were sharper than expected so us producer prices Rose 310 of a percent in January the most in five months year onye year wholesale inflation increased 9/ T of a

Percent up from a forecast of 610 of a percent the core PPI less food and energy Rose by a stiffer 610 of a percent to keep the 12-month rate unchanged at 2.6% so wholesale inflation is holding up well most of this is services and what are Services well they’re wages and

Wages uh are up about 4.5% year on-year higher than the inflation rate right now so the consumer has a bit more spending power relative to inflation than they’ve had for quite a while and we’re seeing that in the economy we’ll talk a bit more about that in just a minute but that’s really

What’s helping to create inflation remain and keep it remaining sticky now Jim Rickards talked about inflation at the New Orleans investment conference in November and he said supply side inflation tends to resolve itself while demand side inflation tends to re reinforce itself so we had covid Supply shock inflation which has now been

Resolved with the supply lines fully loaded again but now demand inflation specifically wages and hous in are holding up and that tends to be stickier inflation so the FED may have a little bit harder row than they thought going this last mile getting inflation down

That last one and a half to 1% to their target they may have to raise their target we don’t know but the hotter than expected consumer inflation data the elevated wholesale prints uh suggest higher prices may be with us for longer than expected potentially delaying the fed’s plan PL to Pivot towards lower

Interest rates and that’s really what the where the rub is the economy has been better than we expected and uh the consumer spending and that’s helping to keep inflation stickier than they expected it might be at this point in time so this is a chart

Of US GDP this goes back to the first quarter of 2021 you can see relative 2021 was a pretty good year despite the fact that inflation was surging and we had covid issues 2022 the first half of 2022 was negative but it wasn’t a recession how they figured that out I

Don’t know the next four quarters have seen diminishing GDP from 2.7 to 2.1% followed by a shocker of 4.9% in Q3 of 23 and then another good print in Q4 of 23 at 3.3% so GDP for the last two quarters is better than it’s been for the last eight

And that’s what’s going on and helping to reinforce inflation so GDP is good the economy is doing pretty well here in the us but we are the only economy in the world right now that’s doing well China has been weak as you know Japan is basically just gone into recession

Europe is weak uh because of the what’s going on with the Ukraine war over there so the US economy is really the only economy that’s that’s fundamentally performing right now uh let’s let’s take another look at the uh economic activity via jobs this is a monthly job creation bar

Chart going back to January of 2021 and as you can see since about the summer of 21 all the way into November of 23 on average the jobs have been trending lower we’ve seen a couple spikes along the way but in the last two months we’ve had two really good job

Prints about 345,000 jobs created in December and then a little over 353,000 jobs created in January better than expected so employers here in the US continue to hire with the unemployment rate at about 3.7% and the weekly job claims coming in pretty steady uh the US economy continues to look pretty

Good and that is all reinforcing inflation a bit which is causing the FED to take a step back saying hey we’ve got to reassess here because US economy is not weakening like we thought it would due to the interest rate hikes that we made aggressively in 2022 and into

2023 and uh the consumer remains more resilient than we thought so we may have to walk back our rate hike projections from December from six the Market’s now expecting three rate hikes in 2024 and here are some of the quotes from fed governor is talking about inflation and the prospects for

2024 fed Governor Barkin said recent progress on inflation might be a head fake and that’s what we’re seeing in the numbers over the last two months inflation’s proving to be a little bit stickier Than People anticipated it might be uh fed Governor kakari says the inflation isn’t all the way to where the

Feds 20 2.6% goal so rate Cuts can wait and fed Governor Collins said inflation’s getting closer to 2% but the FED needs more proof so they’re going to take a bit of a wait and see approach here instead of getting into the meat of it like we thought they might just eight weeks

Ago but here’s a little bit of a rub the US consumer may be getting Tapped Out credit card debt has increased by another 50 billion to a new record high of $1.3 trillion the highest it’s ever been I mean this was about 950 billion in October of last year and it’s an

Average of $ 6,360 per credit card so that’s quite a lot of credit that has been given on credit cards and interest rates on credit cards are now over 20% so people are paying a lot of money to buy forward and we saw pretty aggressive spending uh for the Christmas holiday season which

Contributed to this record high and now we’re seeing retail sales for January which were just released drop quite a bit down 8/10 of a percent which is to be expected following kind of a binge buying cycle Thanksgiving to Christmas holidays so we’ll have to see how this

Uh continues to go forward but the consumer via credit card debt is starting to look tapped out to me now here’s a sign uh that we don’t like to see which are credit card delinquencies are starting to rise they bottomed in the summer of 2021 and then as

Inflation’s bite really started to uh take uh spending power away we’ve seen credit card debt surge but now we’re also seeing credit card delinquencies rise now this is still relatively low going from about 1 and a half% on the dark blue line up to about 3% as of Q3

23 we don’t have the latest uh figures yet but credit card delinquency are rising so that means some borrowers are having trouble paying their notes on a monthly basis the good news is mortgage delinquencies are low and they’re staying low and that makes sense because a lot of people aren’t putting their

Houses for sale because they don’t want to trade out of a lower rate mortgage into a much higher rate mortgage today uh most homeowners have loans going back to pre Fed rate hikes and uh preest rate hikes so that’s good news for mortgages so let’s take a look at

Interest rates next because all this ripples into interest rates this is a two-year chart of the federal funds rate in Black the yield on the two-year treasury in purple and the yield on the 10-year treasury bill in red and as you can see since last October yields on

Both the two and the 10year treasury have been dropping pretty sharply going into December but now they’ve gone sideways and in the last couple of weeks they’ve started to really perk up and that’s in response to the economy here in the US doing better and the fact that

The FED may have fewer rate height Cuts than they led us to believe they might have at the end of their December meeting so interest rates are perking back up on the treasury yields uh which is hoping to keep the cost of financing higher and that again

Should help to slow the economy down the economy remains resilient so time will tell as we move forward into the next month or two in 2024 where all this is really going to shake out I think inflation will continue to ease a bit I think we’ve seen a bit of an

Overreaction to some hotter than expected prints uh and we’ll talk about that a bit more in the precious metals than in the dollar here’s the US dollar chart as you can see over the last last year the dollar has been pretty choppy trading primarily between 101 on the low

And 10550 on the high now gold tends to trade inversely to the dollar that’s why we’ve put gold tags on this dollar chart so you can see when the dollar is strong gold tends to be weaker in price and when the dollar is weaker gold tends to

Be higher in price so why is that well most of the gold around the world is priced in dollars but it’s bought outside of the United States it’s bought in China it’s bought in Japan it’s bought in Asia other countries it’s bought in India it’s bought in Europe to

A much higher rate than it is in the US overall but when the dollar becomes strong it makes gold more expensive in other currencies and when the dollar becomes weak relative to other currencies gold becomes less expensive that’s why when the dollar is weaker gold tends to be higher now on the

Dollar Index chart which had been falling pretty sharply since the double peak in October November at about 106.7 we’ve seen the dollar make a big drop going into the beginning of 2024 but now it’s rebounded and that’s a direct relation to the FED reducing the projection for rate he

Cuts meaning the interest rates will stay higher which means the US economy is performing better relative to other economies so the dollar is stronger and it’s popped over short-term resistance where that red line is at 10350 in just the last couple of weeks to a high of

104.8 five I think the dollar is going to settle into about a 102 to a 104 and a half range and be a bit choppy over the next couple of months uh because I do think the US economy is going to weaken a bit and I do think inflation is

Going to weigh a bit further and that’s good for gold so let’s take a look at gold right now now this is a one-year gold chart you can see it’s been choppy uh performing pretty much in D an inverse relationship to the dollar we’ve

Had two lows uh last March uh of 2023 at 1820 and then on the back of the SBB bank failure gold ran all the way to 2055 gold settled into a 1915 to $2,000 trading range for most of the rest of 2023 uh week in October but then Hamas

Attacked Israel and gold caught a bid and today based on the dollar I think gold is about a100 higher than it might be however the war in Israel is not going well uh Israel’s pretty much cleaned out the Gaza Strip they’ve they’ve got more work to do they say uh

But the conflict has gotten outside of Israel’s borders uh Israel is increasingly going at it against Le Lebanon on their northern border we’ve seen the houthis in Yemen attack shipping in the Red Sea the US has responded by going after uh some of the youthy houthi um military capabilities

Uh shipping has been dramatically affected there not many ships going through the Red Sea right now because of all this so ships are having to go around the uh South Africa uh instead of going through the Red Sea uh and that is adding insurance costs and U energy cost

To shipments and time so all this is fundamentally a bit inflationary meanwhile since November gold has been basing over $2,000 an ounce pretty steadily for the first time ever with a new high at 2093 set in late December so gold is looking very strong right now relative

To the dollar relative to the US economy relative to Stronger interest rates uh and relative to what’s happening internationally remember the war in Ukraine continues all that’s worked out to a bit of a stalemate uh but International conflict is as high as it’s ever been in years

Right now and it’s not good and that’s helping deboy the gold price on the latest price action we’ve seen gold drop from about 270 all the way to just over 2,000 on this chart which is a Futures chart now the price we’re seeing on this chart is

The April contract and this past week with a hotter than expected with a A Little Bit Stronger than expected CPI print and now the producer price index print the spot price of gold did get a little bit under 2,000 for the January delivery which is now or I’m sorry

February we’re in February now um at about 1991 it bottomed two days ago uh on a bit of a kn jerk reaction to the hotter than expected inflation rate uh with a higher yields with the yields on the treasuries bumping up but gold has rebounded since and it’s up a little bit

Higher than this chart shows at the close of business on Friday February 16th this is from yesterday uh yesterday’s market close so gold is looking pretty good and I do think over the next year we’ll see gold Advance into the 21 to $2,300 range based on a weaker economy a week dollar lower

Interest rates and perhaps more continued conflict in the world because what we have going on in the Ukraine and in Israel I mean they’re not going to end these conflicts are not going to end easily or quickly I don’t do not think let’s take a look at silver silver has

Been underperforming gold it’s trading it less than its two previous highs of about $50 an ounce where gold is setting new all-time highs in in the last couple of months and trading near all-time highs so silver has been choppy uh over the last couple months it’s been under the resistance

Line there at the right hand side of the chart at $23.50 an ounce uh when the FED announced their alleged pivot in December uh it it popped a couple bucks to about 2664 that’s the short-term High it has been edging lower and it did get pushed down to almost $22 an ounce

Uh on this knee-jerk drop due to the inflation print the other day but now it’s rebounding so Silver’s catching a bid and as we go to market close on Friday today it’s actually about 2350 an ounce back up to the top of the uh resistance level right at it so this

Chart shows yesterday’s close again so silver is trading uh at a much lower price relative to Gold than we think it should with gold at around $2,000 an ounce I think silver should be closer to $35 an ounce than $25 an ounce and I think when silver plays catchup it will

Do so with a Vengeance and we’ve seen it do that a couple times uh in the bigger picture over the last 15 16 years let’s take a look at the Gold to Silver ratio chart this is a chart that measures the number of ounces of silver it takes to

Equal an ounce of gold uh in modern times that ratio has been between 48 to1 and 82 to1 pretty steadily until we got into the co era when things rotated a bit higher because gold is leading now and silver is lagging but twice we’ve seen this ratio changed dramatically the

First going into the great financial crisis of 2008 the ratio was about 82 to1 with gold at 775 and silver at under $10 and then when silver finally played catchup to gold doubling in price it went up five times in price from under 10 to almost $49 an ounce pushing the

Ratio down to 32 to1 so when you can buy silver at a high gold to Silver ratio and you’re patient you can be rewarded handsomely in moves like that and we saw a similar one uh due to covid when the ratio was about 95 to1 before that big

Spike which was an anomaly at 12 5 to1 that’s completely Co related it was very short term and didn’t last but a ratio of 90 to1 or higher is really high and one silver play catchup going from about $15 an ounce to almost $30 an ounce the

Ratio dropped from about 95 to1 down to about 65 to1 and that’s the kind of catchup we see silver can play when gold runs and silver flags and then finally does run hot and today the ratio is about 85 and the 3/4 to one with gold at 2015 and

Silver at 2350 it was a little bit higher a couple weeks ago when gold was in the 2060 2070 range and silver was still around 23 2350 an ounce so that ratio is down a little bit but it’s still very high at 85 and 3/4 to one so

Silver’s a great buy right now speaking of silver we have a silver special and that is on junk 90% silver dimes and quarters made by the US Mint 1964 and earlier these are the old dimes and quarters that used to be 90% silver by weight that went out of the currency in

1965 we don’t have to pay anyone to make these we trade what survives in the marketplace today uh the attrition of useless currency and the couple of great Melting Pot melts we’ve had over the years when the silver price got red hot a lot of 90% got melted so we’re it’s a

Supply and demand Market in addition to being a metal Market which is why when there’s a lot of demand like we saw during covid premiums on junk silver can jump quite substantially and today we’ve got not only a low silver price at $23.50 an ounce we’ve got a high gold to

Silver ratio at 85 and 3/4 to one we’ve got a low premium on junk 90% silver at a $1.99 over spot junk is the lowest it’s been since before the covid demand waves took premiums much higher across the board so junk silver is a great buy right now and it’s actually cheaper per

Ounce than Sovereign minted 1 ounce coins that are minted in Unlimited Supply every year so you can get a great trading siiz coin at a low premium and a low price today so I think junk silver is a great Buy in the current market if you want to

Add silver and especially silver that might be good in a crisis to your portfolio so that’s our update this is how you contact us we are a national physical precious metals mail order dealership out of Austin Texas we’re in our 25th year we have a perfect business

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