Gold and silver prices have climbed dramatically over the past two weeks and accelerated their upward momentum over the past two days. Gold and silver prices rose to new multi-week highs in response to three major reports and events that confirmed what the American public had been well aware of for some time. First, this inflation is endemic and continues to spin out of control at higher levels. According to the latest CPI figures, inflation is at 9.1%, its highest level in 41 years.
This is despite the dramatic and extremely hawkish action of the Federal Reserve which has raised interest rates in the last four consecutive FOMC meetings in higher increments. Starting in March, the Fed will raise rates by 25 basis points. The next FOMC meeting in May saw the Fed hike rates by 50 basis points. This was followed by rate hikes of 75 basis points at the FOMC meetings in June and July.
Despite their dramatic attempt to reduce inflation, the core CPI reported a few weeks ago saw a fractional decline from 5.9% to 5.7%. However, today the government announced that the core PCE price index rose by 0.5%. This means that PCE prices are expected to rise 6.6% YoY (YOY) and core PCE prices are up 4.7% YOY.
These latest reports indicate that the Federal Reserve’s aggressive rate hikes have been ineffective in reducing “headline” and core inflation. Recent rate hikes by the Federal Reserve took the federal funds rate from near zero to 2.25%, leading to only one major achievement if you can call it that. They have effectively contracted the US economy for the past two consecutive quarters.
It is abundantly clear that the US economy meets the definition of a recession, no matter what the government wants us to believe. Therefore, yesterday’s and today’s extremely robust movements for gold and silver are highly justified and long overdue.
Whatever spin the President and other political entities spin to falsely express that the US economy is robust and growing, it goes against the grain of the truth. The GDP of the last two quarters infers by definition that we have entered or are in recession.
The dollar has seen a significant decline in its value. After peaking above 109 in the week of July 11, the dollar index is now below 106. This is a 3% decline in value over the past three weeks. Meanwhile, we saw spot gold rise from a low of $1683 last week and gain around $102 by the close of trading today.
As of 5:15 p.m., spot gold EDT is currently trading at $9.14 or 0.52% and set at $1,765.34. August gold futures is no longer the most active contract month, now the most active gold futures is December, currently trading $13.50 higher and fixed at $1782.70.
Silver has had a spectacular run over the past two days, gaining 7.45% on Thursday and another 2.35% today, taking September’s most active silver contract to $20.335.
Traders and market participants eventually shifted their primary focus from higher interest rates to higher inflation. The government’s most recent data clearly defines the complete failure of the Federal Reserve’s attempt to bring inflation down to an acceptable level. Unquestionably, we will most likely see gold and silver continue to run at higher prices.
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Wishing you as always good exchanges,
Gary S. Wagner
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