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Metal Market Report October 2021 - Week 2 Edition

October 2021 - Week 2 Edition

Gold is Making Gains

Gold has traded in a narrow range above $1,750 but this week it moved up to $1,794, despite the rising U.S. Dollar. I believe Gold is awaiting a clear resolution of several financial developments, such as the two massive spending bills in Congress and the Fed’s decision to taper their quantitative easing (QE) and perhaps raise interest rates.

Mid-Month Report on Debt, the Dollar and Inflation

Federal Debt: The U.S. Treasury closed the 2021 Fiscal Year on September 30, 2021, with a surprise announcement that the total red ink reached $2.8 trillion, the second largest deficit ever. That is second only to 2020’s $3.1 trillion deficit. Part of the slowdown in deficit spending was the delay in passing two massive spending bills totaling $5 trillion, due to Republican resistance but also because two notable Democrats, who were hounded mercilessly stood their ground. The total public debt at the federal level is now $28.4 trillion.

The U.S. Dollar Index is up 2.5% since September 3, the Friday before Labor Day weekend. Currently, the dollar is returning a small but positive (about 1%) interest rate, so the dollar is attracting global investors who have abandoned the zero or negative interest rates offered by the euro or Japanese yen. Gold has increased $40 to $1794, so far, this week but for gold to make a strong gain in U.S. dollar terms, it would be helpful to see a decline in the U.S. dollar in terms of other major currencies.

Inflation is reported mid-month. The Consumer Price Index (CPI) was released Wednesday morning and the Bureau of Labor Statistics (BLS) reported the CPI came in one tick higher than expected. The pundits expected a slowdown to 0.3% (a 3.6% annual rate), but it came in at 0.4% (a 4.8% annual rate). The year-over-year rate is +5.4%, the highest rate in over 30 years, since January 1991, the month Gulf War began in Kuwait. Meat prices were up 3.3% in September. In an earlier report, BLS stated that the cost of a washing machine was up 29.4% in the past year, while a comparable used car cost 31.2% more.

The Producer Price Index (PPI) comes out Thursday morning, but here are how some commodities have fared year-to-date – since the Biden Administration has mandated an accelerated Green Energy policy.

Europe’s Energy Crisis. If you think inflation is bad here, be glad you don’t live in Europe. The price of gas in the United Kingdom is up 285% this year. Natural gas prices are up 7-fold. And they can’t find enough truck drivers to deliver products. On the European mainland, they bet everything on wind power but then the wind stopped blowing. The weather is gorgeous but natural gas prices are up six-fold and euro gasoline costs 348% more. Europe relies on Russia for natural gas and the Middle East for crude oil, but they thought they could build their new energy system on wind and solar, and are facing catastrophic results.

 

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