Gold Bullion
Sceptics may question what the allure of investing in gold bullion is whilst interest rates on bonds are rising. Gold bullion investors will argue that not all is what it seems in the economy. In fact, now may be an excellent time to buy gold bullion coins and bars at the current paper gold diluted prices.
Following a fairly benign Personal Consumption Expenditures print, which is Federal Reserve Chairman Powell’s preferred indicator by his own admission during his Jackson Hole speech, the politically driven headline nonfarm payrolls jobs beat was accompanied by a guaranteed downside adjustment, and which is of course ignored by the headline driven trading algorithms. These algorithms are designed to chase the main number.
It was anticipated to be a non-event following the PCE print, while headline nonfarm private providers number was yet another headline “beat” because it is bolstered by a massive amount of part time jobs, all of which will be of course revised lower next month as has been the case all year.
But what could not be ignored by live traders was the unprecedented 670,000 full time jobs that have been lost in just two months and this was the worst unadjusted August payrolls since the Great Recession. Gold bullion investors are watching the jobs data very closely because this gives a sign of what the Federal Reserve will do with interest rates.
The dubious 100% record of politically generated job beats have been followed 100% of the time by a prior downside adjustment had successfully been fooling the headline algorithms but this month these accruing adjustments finally exposed a full year of rigged data and immediately drove the dollar sell off and an inverse race into safe havens including of course gold and silver.
We must keep in mind that the Fed has been reliant on strong jobs data to continue to hike their way out of an inflationary hole, but these numbers were impossible to ignore disaster, immediately evidencing a natural reaction in the foreign exchange and bond crosses.
As far gold and silver were concerned, with the dollar index plunging and gold and silver spiking higher something had to be done and with the Fed already in possession of this non-farm payrolls data days ahead of the Friday release, they would have fully anticipated this steep dollar sell off and created a pre-planned US dollar rescue intervention. This sort of intervention has frustrated gold investors for some years now.
It was no coincidence that the Fed member Loretta Mester was immediately rolled out on the podium frantically spinning more hawkish comments rescuing a plunging dollar index and driving the inverse gold and silver algorithms into sell mode.
Hawkish comments hurt gold because as the US dollar was rising, gold and silver immediately started selling. This is inverse in the sense that if the dollar is higher the other side of the trade is sold lower which prevents gold prices being permitted to break higher.
However, this is where it gets interesting because with net stable funding ratio compliant first tier physically deliverable spot gold trading in the live foreign exchange markets, this competes with US treasury bonds as a first-tier asset class. Many believe that the US government have an agenda against gold bullion for this reason.
It is important to understand the change in gold’s behaviour versus US dollars and bonds. There have been multiple bouts of gold rising alongside a rising dollar and this 50-year paper centric inverse algorithm is actually showing signs of dislocating.
This comes as both paper and physical gold are increasingly sort as a first-tier safe haven asset class. The last time we evidenced anything close to the scale of such a dollar index gold disconnect was back in 2008 when gold rose alongside the dollar and both began to compete with each other as safe havens
This followed massive bank failures and downgrades in 2008, both paper and physical gold were chased into a three-year $1200 safe haven rally with inconsequential small pullbacks along the way. Joined at the hip silver also rallied alongside the dollar index and that rose $40 as investors exiting bank investments converted bank withdrawals into safe haven silver bullion and coinage.
Gold investors are aware that we are likely see to bond yields spike higher again which would almost certainly trigger the pre-warned Jackson Hole Fitch and Moody’s first tier too big to fail bank downgrades.
Gold investors know that this would open the potential for a concurrent dollar and gold safe haven rally to unfold, only this time gold is now a first-tier asset class unlike back in 2008 which should reinforce the safe haven effect of gold bullion.
There is evidence that an increasing number of Comex commodity trading advisors have recognised the Basel III compliant gold morphed into this first-tier asset class on the 1st January 2023 and are increasingly employing gold as a risk hedge, meaning their cash settled Comex open interest has become sticky and far less able to be rinsed.
This means that as the Comex futures markets miss-price gold, like they are currently doing, net of what can be cash settled against the speculators, the exchange for physical outflows is evidencing a higher bilaterally settled physical gold price in the real goal global markets who are benchmarking a premium over these rigged price fixes.
When the wider market realises that higher interest rates are likely to cause further economic damage and the jobs market is not as strong as reported, safe have assets will duly catch a bid and gold bullion is very likely to be a big beneficiary of this rush into safe havens on the international
