Gold just doesn’t give up

[View this email in your browser]( [Youtube]( [Kitco Metals]( Editor's Picks [@neils_C]( A lot has been thrown at the gold market, yet prices refuse to go lower. This week, the yield on 10-year bond yields rose to a 15-year high. Traditionally, higher bond yields are negative for gold because it raises the precious metals opportunity costs as a nonyielding asset. While the gold market did see some initial weakness, it wasn’t sustainable as prices are looking to start the weekend with a 1% gain, ending four weeks of losses. At the same time, silver is ending the week with a 2% gain as it saw a modest short squeeze. Despite the current strength in the marketplace, gold isn’t ready to rally back to $2,000 an ounce anytime soon. The Federal Reserve maintains complete control of the global financial landscape. With stubborn inflation and a relatively tight labor market, the central bank is not expected to shift its current hawkish bias anytime soon. [Federal Reserve Chair Jerome Powell signaled]( as much in his much-anticipated comments at Friday’s Jackson Hole central bank summit. According to many economists, Powell’s comments were fairly uninspiring as he provided no guidance on monetary policy ahead of next month’s decision. However, he was fairly clear that the central bank is committed to bringing inflation back down to its 2% level. "Two percent is and will remain our inflation target. We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time. It is challenging, of course, to know in real-time when such a stance has been achieved,” Powell said in his prepared remarks. Although Powell continues to talk tough, many analysts have said that the central bank is probably nearing the end of its tightening cycle. The U.S. economy has been surprisingly robust through the first half of the year and despite growing optimism, the threat of a recession remains elevated. Adrian Day, president of Adrian Day Asset Management, provided a compelling argument for the currency environment. [In an interview with Kitco News,]( he noted that decades of low interest rates and government COVID-19 spending prolonged the lag effects for monetary policies. However, he added that the longer runway is starting to come to an end. He noted that consumer spending, which has supported economic activity, could soon dwindle as consumers take on more credit at higher interest rates. Day pointed out that in one year, consumers went from record savings levels to credit debt levels. According to the Federal Reserve, consumer debt has now reached $1 trillion. “We haven't escaped a recession, in my mind, by any means,” he said. “You can't raise rates from zero to five without doing serious damage.” Looking at the global marketplace, the growing de-dollarization trend is also providing long-term support for gold prices. [Brazil, Russia, India, China, and South Africa (BRICS)]( wrapped up their international summit and have invited Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and UAE to join their ranks. The BRICS nations now include major oil producers and control over the Suez Canal, a significant trading route connecting the East and the West. [Russia will now lead the BRICS nations ahead]( next year’s summit and they are already pushing for the creation of a global trading currency. Russian President Vladimir Putin made his intentions clear in a video message during the meeting. “The objective, irreversible process of de-dollarization of our economic ties is gaining momentum, and efforts are being made to work out effective mechanisms for mutual settlements and monetary and financial control,” Putin said. For now, gold investors need to be a little patient, but if gold can hold its ground in this challenging environment, what can it do when favorable winds start to blow? That’s it for this week. Have a great weekend. Neils C. 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