Peter Schiff: Stagflation Is Here!
We got the highly anticipated employment report on Friday. It came in far below expectations. But despite weak economic data, bond yields are rising, along with the price of just about everything. Meanwhile, a gold rally fizzled. Peter Schiff talked about it during his podcast, explaining just how badly the markets are misinterpreting the data. When you add up plunging bonds yields, strong oil, and weak economic data – that equals stagflation.
According to the September Labor Department report, the US economy added 194,000 jobs last month. The projection was for around 500,000 new jobs.
A big decline in government jobs helped drive overall job growth down. As Peter noted, that’s not necessarily a bad thing.
The only way to pay government workers is through taxes. So, if government workers are not employed, that is actually a benefit for the taxpayer because they’re relieved of the burden of paying their salaries. And of course, a lot of the government work that’s done actually interferes with productivity. We’re actually better off without those workers because the workers are simply getting in the way of the productivity of everybody else.”
The report was “highly anticipated because Jerome Powell specifically said the September job numbers would be instrumental in the Fed’s decision as to whether or not to start the quantitative easing taper.
If this was the number the Fed was hanging its hat on for confirmation that the data supported a taper, well clearly, now that this number is out, if the Fed was basing a decision to taper on this number, well, it’s not going to taper, which is basically what I’ve been saying all along — that the Fed is just bluffing when it comes to any movement to take the punch bowl away.”
Although job creation came in far below expectations, unemployment dropped from 5.2% to 4.8%. On the surface, that seems like a positive. But one of the reasons that number came down is people simply left the workforce. The labor force participation rate went down from 61.7% to 61.6%. Peter said this is another reason the Fed won’t likely taper. Powell has said he’s looking at participation.
The fact that the rate went down is just another reason why the Fed is not going to taper before the end of the year. And of course, if it’s not going to start the taper, when’s it going to start raising rates? Because again, Powell has already said that the rate-raising process — liftoff — that’s not even going to happen until tapering is completed.”
Average hourly earnings were up 0.6% but real wages continue to fall. Inflation is eating up income gains.
The bottom line is this is a weak jobs report, especially when you consider everybody was expecting a strong jobs report.
Normally, inflation news combined with weak economic data would be a big plus for gold. Gold did initially rally on the bad news – as you would expect. But a rise in interest rates and bond yields weighed on the yellow metal and the rally fizzled.
Meanwhile, oil prices pushed above $80 a barrel. This is the first time we’ve seen oil this high since 2014. Peter said he thinks rising oil prices, along with rising commodity prices more broadly, spooked the bond market. Normally, weak economic data would send bond prices rising and yields falling. Instead, yields went up due to inflation.
Bond yields are only rising because of inflation. They’re not rising because of a strong economy, but higher inflation. That is not negative for gold. Inflation driving bond prices down should also be driving gold prices up. The only reason it’s not is because the market still expects the Fed to fight inflation. Every time we see more evidence of higher inflation, gold gets hammered because investors assume that the Fed’s going to do something. The narrative pretty much goes like this: the Fed thought inflation was transitory and they were wrong. And because they were wrong as more evidence manifests itself that shows that they were wrong, now the Fed is going to have to change their policy and they’re going to have to be more aggressive.”
In fact, some media pundits have expressed concern that the central bank might be too aggressive and overshoot on rates. Peter said this is all nonsense. How can anybody really think the risk is that the Fed will be too tight?
There’s no way that’s going to happen. The risk is the reverse. The risk is that the Fed waits so long to raise rates that by the time they do, it’s too little too late.”
Nevertheless, investors aren’t buying gold.
People aren’t buying gold as an inflation hedge because they don’t think there’s any inflation to hedge because they’re confident the Fed is going to put out the fire before it really gets burning.”
The bottom line is we got a very weak jobs report. We have surging oil prices. We have rising bond yields, so interest rates are rising instead of falling to stimulate a weak economy. The dollar index fell.
So, a weakening dollar with rising consumer prices, rising bond yields and weak economic data – that spells stagflation. I mean, stagflation is here.”
Gold Mining Stocks Are Surging…and Have a Lot To Prove
After being left for dead, companies who mine the barbarous relic have made a comeback. Gold mining stocks are showing a thrust in medium-term trends, but longer-term trends remain poor. That has preceded mostly negative returns for the HUI Gold Bugs I…
After being left for dead, companies who mine the barbarous relic have made a comeback. Gold mining stocks are showing a thrust in medium-term trends, but longer-term trends remain poor. That has preceded mostly negative returns for the HUI Gold Bugs Index.
Less than a month ago, fewer than 5% of gold mining stocks traded above their 50-day moving averages. With a surge in gold prices in recent weeks, miners got bid, and several days recorded more than 85% of the stocks trading above their averages.
When these stocks have cycled like this, from few to most of them trading above their 50-day averages within 30 days, the sector showed mediocre returns. It rallied most of the time over the next 1-2 months but then often saw those gains peter out. Over the next 6 months, the average return was a woeful -4.4%.
We also looked at medium-term breadth thrusts when few stocks traded above their 200-day moving averages. And times when most of the stocks were emerging out of bear markets. Forward returns were not encouraging.
What else we’re looking at
- Full results after breadth thrusts in gold miners
- What happens when miners end a long streak with more than 75% of stocks mired in bear markets
- The S&P 500 is about to enter a “power period”
- What momentum in the S&P equal-weight index means for future returns
The S&P 500 Equal-Weight Index, which gives equal weight to each of the 505 stocks in the index, just ended a streak of 10 consecutive positive days for only the 2nd time in a decade (October 5, 2017, was the other).
Transportation stocks are really moving. Over the past week, the Optimism Index for the IYT fund has averaged more than 83%, among the highest in 5 years. There is often a burst of optimism like this after emerging from a prolonged downtrend.
Brazil waxed. Sentiment on Brazilian stocks is morbid and getting even worse. Over the past 100 sessions, the Optimism Index on EWZ has dropped near 40%, among the lowest levels in a decade.
Around the globe. Our Optimism Index Geo-Map shows that Brazil is one of the few countries where investors show low optimism (green color).
Gold price outlook with November Fed meeting in focus
Gold price is still below $1,800 after dropping below this crucial level in the previous session. Investors’ focus is on Fed’s meeting in the coming…
Gold price is still below $1,800 after dropping below this crucial level in the previous session. Investors’ focus is on Fed’s meeting in the coming week.
November’s Fed meeting
In the ensuing sessions, gold price will likely record subtle movements as investors avoid huge bets ahead of the FOMC meeting scheduled for the first week of November. Fed officials are set to taper the $120 billion monthly asset purchases as inflationary pressures persist. November’s meeting will be the beginning of a path to end the bond-buying program by mid- next year.
Since the beginning of the year, the US central bank has downplayed concerns of the economy overheating by indicating that the rise in prices would be temporary. However, the officials appear more concerned about the persistent rise in inflation.
During a virtual conference held in the past week, the Fed Chair, Jerome Powell acknowledged that supply constraints have worsened. As a result, there are “more-persistent bottlenecks” that are pointing to higher inflation. Subsequently, Powell noted that the Fed needs to be flexible in coming months in order to position its policy to suit the various possible scenarios.
Notably, investors are evaluating the prospects of interest rate hikes. Based on the CME Group-tracked futures market prices, the likelihood of at least two rate hikes by the end of 2022 surged to 75% in the past week. The figure is a considerable rise from 20% after September’s FOMC meeting.
Ahead of November’s Fed interest rate decision, $1,800 will remain a crucial level for gold price. Typically, precious metals have an inverse correlation with the value of the US dollar. The dollar index has held steady above the major resistance-turn-support zone of $93.50 since the beginning of October. The index tracks the value of the greenback against a basket of six currencies.
With a steady dollar, the precious metal will likely have its gains curbed at October’s high of $1,814.13. Besides, eased stimulus and rise in interest rates is bound to boost Treasury yields. This would further exert pressure on the non-yielding bullion.
However, gold price downward movements may be limited. With the ongoing economic risks, its safe-haven appeal and status as a hedge against inflation will probably boost it above September’s low of $1,720.
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REZ levels up with maiden Granny Venn gold pour
Special Report: Richard Poole-led REZ has joined the ranks of producers with the maiden gold pour completed from its Granny … Read More
The post REZ…
Richard Poole-led REZ has joined the ranks of producers with the maiden gold pour completed from its Granny Venn deposit.
Sydney-based Resources & Energy Group (ASX:REZ) has showed off the very first gold bullion produced from its Granny Venn mine, part of the Menzies project in Western Australia.
The first toll treatment for the Granny Venn cut back has reached the midway mark, which resulted in the first gold pours for the project yesterday morning at the Lakewood mill.
A total of 22.84kg of gold doré was produced from the pour and is now being dispatched to the Perth Gold Mint for determination of assay for out-turn certification.
Before REZ and BM Mining restarted mining at Granny Venn in early July this year, no mining activity had taken place in 23 years.
Around 17,000 tonnes of Granny Venn ore has been processed since the toll milling campaign began in mid-August.
REZ and BM Mining partnered up under a profit-sharing agreement back in March to exploit the economically recoverable remnant resources at the Menzies project.
BM Mining is part of the BM Geological Services (BMGS) group of companies that have been active in the mining industry in the Goldfields of Western Australia since 2003.
Executive Director Richard Poole said the maiden gold pour represented a pivotal moment in REZ’s growth as it transitioned from exploration to production.
“We would like to congratulate BM Mining, which has done an exceptional job in assisting us in reaching this production milestone and completing the maiden gold pour at the Lakewood mill.” – Executive Director Richard Poole
“Since acquiring ground in the East Menzies Goldfield, the company has moved rapidly to identify and commercialise resources, whilst maintaining a vigorous exploration strategy which has delivered some outstanding results for gold at Gigante Grande, and for nickel at Springfield.”
REZ’s near-term goal is to mine 120,000 tonnes of ore at an average grade of 2.3 grams per tonne (g/t) to produce 8,800oz of gold.
At today’s high Aussie dollar gold price, that would fetch roughly $21.1m, nicely boosting REZ’s coffers to help fund its continued exploration.
The original Granny Venn open pit, which was developed by Money Mining and Paddington Gold in 1997-1998, was based on a pit design optimised at a gold price of $454/oz. The gold price is now 5x that.
And making it even more lucrative for REZ is the fact that under the profit-sharing deal with BM Mining, REZ didn’t have to shell out a dime to get Granny Venn back in operation, with BM Mining covering the $3m capital outlay required.
The initial production campaign is scheduled to be completed in late December.
This article was developed in collaboration with Resources & Energy Group, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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