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Top Stories This Week: Gold Still Mired in Fed Uncertainty, Busy Juniors Facing Lab Delays

Catch up and get informed with this week’s content highlights from Charlotte McLeod, our editorial director.
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This article was originally published by Investing News Network

The gold price remained below the US$1,800 per ounce mark this week, a level it’s been stuck under for most of the month of August.

It was sitting at around the US$1,780 mark at the time of this writing on Friday (August 20) afternoon, about where it was at the same time last week.

Although gold is trading at historically high levels, many market watchers continue to be disappointed with its performance given the wide range of factors that should be having a positive impact.

 

Are You Investing In Gold Yet?

   
What Happened To Gold In Q1? Which Gold Stocks To Watch In 2021?
Exclusive Information You Need To Make An Informed Decision.
 

I heard this week from Brien Lundin of Gold Newsletter, who said while he feels confident in gold’s long-term prospects, the near term is less certain. He pointed out that there tends to be weakness in the metal when the US Federal Reserve is shifting its messaging, which is what’s happening right now. Once there’s some action from the central bank that should signal a bottom for gold.

“The long-term picture is still good, and I’m very bullish and positive on that. But for gold, its near-term future is much more uncertain than its long-term future” — Brien Lundin, Gold Newsletter

I also had the chance to speak with Joe Mazumdar of Exploration Insights, who shared his thoughts on how junior miners are doing at the halfway point in 2021.

Many were able to raise cash last year, and Joe said this year that money is being put to work — the problem is that there’s so much drilling activity that labs are getting backed up. Instead of seven to 10 day turnarounds, companies are now looking at six to eight weeks for results.

With drilling in focus, I asked Joe what investors should look for when a company they follow is putting together a drill program. In his opinion, it’s important to know what the company wants to accomplish with the work it has planned — in other words, expectations should be different depending on whether the focus is on grassroots drilling vs. confirmation or extension drilling.

“When you set your expectations for a company, you’ve got to know what they’re drilling for. And so if it’s grassroots exploration, almost expect to be disappointed and have a longer time frame that you’re looking at in terms of if this is something that could be significant” — Joe Mazumdar, Exploration Insights

With Joe’s comments in mind, we asked our Twitter followers this week if they’ve been noticing a slowdown in exploration results this summer. An overwhelming majority of around 80 percent said this is a trend they’ve been seeing as well; it’s unclear when the backlog may clear up.

 

What's On The Horizon For Precious Metals In 2021?

   
Trends, Forecasts, Expert Interviews and more! All The Answers You Need To Make An Informed Decision.
 

We’ll be asking another question on Twitter next week, so make sure to follow us @INN_Resource or follow me @Charlotte_McL to share your thoughts.

This week we’re going to end with blockchain. INN’s Bryan Mc Govern took a look at where the market stands now that we’re halfway through the year, and unsurprisingly all the experts he spoke with agreed that it’s been a critical year for cryptocurrencies, as well as the technology that powers them.

While bitcoin’s volatility has been a hot topic in 2021, it’s also seen increasing adoption from individuals, businesses and even countries. Notable examples include Tesla (NASDAQ:TSLA), which in February announced the purchase of US$1.5 billion worth of bitcoin, and El Salvador, where lawmakers recently voted to make bitcoin legal tender. Tesla also accepted bitcoin as payment for a brief period of time.

So what’s next for blockchain and cryptocurrencies? Market watchers believe that heading into the rest of the year it will be important to keep an eye on further moves into the mainstream, including new bitcoin exchange-traded products, which are making it easier than ever before to jump in.

“The core reason for (exchange-traded) products is to provide easier access to investing in cryptocurrencies. No question, that’s what we’re doing” — Elliot Johnson, Evolve Funds Group

Want more YouTube content? Check out our YouTube playlist At Home With INN, which features interviews with experts in the resource space. If there’s someone you’d like to see us interview, please send an email to cmcleod@investingnews.com.

And don’t forget to follow us @INN_Resource for real-time updates! 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

Silver Price Forecast - What Happened And Where Do We Go From Here?

   
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The post Top Stories This Week: Gold Still Mired in Fed Uncertainty, Busy Juniors Facing Lab Delays appeared first on Investing News Network.

Economics

US indices close week mixed, weighed down by tech stocks

Benchmark US indices closed the trading week mixed on Friday September 24 pulled down by losses in technology and healthcare sectors amid mixed global…

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Benchmark US indices closed the trading week mixed on Friday, September 24, pulled down by losses in technology and healthcare sectors amid mixed global cues.

The S&P 500 was up 0.15% to 4,455.48. The Dow Jones rose 0.10% to 34,798.00. The NASDAQ Composite fell 0.03% to 15,047.70, and the small-cap Russell 2000 was down 0.49% to 2,248.07.

Global markets remained volatile this week amid mixed cues. US stocks wavered after news that Chinese real estate giant Evergrande Group was on the brink of a major default.

Its US$300 billion debt bomb has sent shockwaves across the global markets. On Thursday, it entered a 30-day grace period after missing an interest payment deadline.

The Fed's sooner-than-expected timeline for stimulus tapering also weighed on investors' minds. The central bank said this week that it is considering withdrawing its bond-buying program by November. Consequently, an interest rate hike may be imminent.

Separately, the Biden administration is also planning to increase the corporate tax. It is currently debating a spending bill, which is expected to outline the program.

On Friday, the energy and financial stocks were the top gainers on S&P 500 index. Real estate and healthcare stocks were the bottom movers. Six of the 11 index segments stayed in the green.

Shares of Nike, Inc (NKE) fell 6.17% after it lowered its sales forecast. The company said it is facing challenges to meet the demand for shoes and athlete wear due to delays in production and shipping. Nevertheless, its revenue jumped 16% YoY to US$12.2 billion in Q1, FY22.

Meredith Corporation (MDP) stock rose 25.27 percent after news that the magazine publisher is in advanced talks for its purchase by media and internet holding company IAC/InterActiveCorp.

In the healthcare sector, Moderna Inc. (MRNA) fell 4.65%, Dexcom Inc. (DXCM) shed 2.25%, and Waters Corporation (WAT) fell 1.78%. Resmed Inc. (RMD) and Boston Scientific Corporation (BSX) ticked down 1.37% and 1.06%, respectively.

In technology stocks, Enphase Energy Inc (ENPH) declined 3.04%, NVIDIA Corp (NVDA) fell 1.89%, and Adobe Inc. (ADBE) declined 1.48%. Accenture plc (ACN) shed 1.20%, and Salesforce.com Inc. (CRM) gained 2.47%.

In the energy sector, ConocoPhillips (COP) rose 2.43%, EOG Resources Inc. (EOG) gained 2.45%, and Baker Hughes Co (BKR) gained 1.25%. Hess Corporation (HES) and Pioneer Natural Resources Company (PXD) advanced 1.10 and 3.21%, respectively.

In the crypto market, prices tumbled after the Central Bank of China declared crypto transactions illegal. Bitcoin (BTC) fell 5.49%, Ethereum (ETH) fell 7.74%, and Dogecoin (DOGE) declined 6.82%.

Also read: With chipmakers in the spotlight, here’s a peek at five of them

Also read: Top five communication stocks that rode the Q2 rebound

Six of the 11 segments of the S&P 500 index stayed in the green.

Also read: Why are Salesforce (CRM), Affirm (AFRM) stocks in limelight today?

 Futures & Commodities

Gold futures were up 0.03% to US$1,750.40 per ounce. Silver decreased by 1.21% to US$22.405 per ounce, while copper rose 1.20% to US$4.2817.

Brent oil futures increased by 1.04% to US$78.05 per barrel and WTI crude was up 0.93% to US$73.98.

Also Read: In the Spotlight: Top 50 US startups in 2021

Bond Market

The 30-year Treasury bond yields was up 3.15% to 1.985, while the 10-year bond yields rose 3.02% to 1.453.

US Dollar Futures Index increased by 0.27% to US$93.278.

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Precious Metals

Your cash will lose at least 5% of its purchasing power in the next year

Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next…

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Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next 12 months. Yes, your cash balances will lose at least 5% of their purchasing power over the next year, and that's virtually guaranteed. So what are you—and others—going to do about it?

Assumptions: This forecast of mine optimistically assumes that 1) the first Fed rate hike of 25 bps comes, as the market now expects, about a year from now, and 2) the rate of inflation slows over the next 12 months to 5% from its year-to-date rate of 5.9%. Personally, I think inflation next year likely will be higher, if only because of the delayed effect of soaring home prices on Owner's Equivalent Rent (about one-third of the CPI), the recent end of the eviction moratorium on rents, and the continued, unprecedented expansion of the M2 money supply.

I'm a supply-sider, and that means I believe in the power of incentives. Tax something less and you will get more of it. Tax something more and you will get less of it. Erode the value of the dollar at a 5% annual rate and people will almost certainly want to hold fewer dollars than they do today.

I'm also a monetarist, and that means I believe that if the supply of dollars (e.g., M2) increases by more than the demand for dollars, higher inflation will be the result. We've already seen this play out over the past year: the M2 money supply has grown by more than 25% (by far an all-time record) and inflation has accelerated from less than 2% to 6-8%. Massive fiscal deficits have played an important role in this, but so has an accommodative Fed. Between the Fed and the banking system, 3 to 4 trillion dollars of extra cash were created over the past 18 months. At first that was necessary to supply the huge demand for cash the followed in the wake of the Covid shutdowns. But now that things are returning to normal, people don't need or want that much cash. Yet the Fed continues to expand its balance sheet, and they won't finish "tapering" their purchases of notes and bonds until the middle of next year. That means that there will be trillions of dollars of cash sitting in retail bank accounts (checking, demand deposits and savings accounts) that people will be trying to unload.

If we're lucky, the inept and feckless Biden administration will be unable to pass its $1.5 trillion infrastructure and $3.5 trillion reconciliation bills in the next several weeks. This will lessen the pressure on the Fed to remain accommodative, but it's not clear at all whether it will encourage the Fed to reverse course before we have a huge inflation problem on our hands. Non-supply-siders (like Powell) view an additional $5 trillion of deficit-financed spending as an unalloyed stimulus for the economy. Supply-siders view it as a virtually guaranteed way to increase government control over the economy and thereby destroy growth incentives and productivity.

Amidst all this potential gloom, there are some very encouraging signs, believe it or not. Chief among them: household net worth has soared to a new high in nominal, real, and per capita terms. Also, believe it or not, the soaring federal debt has not outpaced the rise in the wealth of the private sector. See the following charts for more details:

Chart #1

Chart #1 is a reminder of just how low today's interest rates are relative to inflation. Terribly low! In normal times, a 4-5% inflation rate would call for 5-yr Treasury yields to be at least 4-5%. yet today they are not even 1%. The incentives this creates are pernicious: holding cash and/or Treasuries implies steep losses in terms of purchasing power. That in turn erodes the demand for cash and that fuels more spending and higher inflation.

Chart #2

Chart #2 shows the growth of the non-currency portion of M2 (currency today is about 10% of M2). Currency in circulation—currently about $2.1 trillion—is not an inflation threat, because no one holds currency that they don't want. The rest of M2, just over $18 trillion, is held by the public (not institutions) in banks, in the form of checking, savings, and various types of demand deposits. For many, many years M2 has grown at an annual rate of 6-7%. But beginning in March of last year, M2 growth broke all prior growth records. As the chart suggests, the non-currency portion of M2 is about 25% higher than it would have been had historical trends persisted. That means there is almost $4 trillion of "extra" money in the nation's banks. This extra money has been created by the same banks that are holding it: banks, it should be noted, are the only ones that can create cash money. The Fed can only create bank reserves, which banks must hold to collateralize their deposits. Today banks hold far more reserves than they need, so that means they have a virtually unlimited ability to create more deposits. And they have been very busy doing this over the past 18 months. 

For most of the past year I have been predicting that this huge expansion of the money supply would result in rising inflation, and so far that looks exactly like what has happened. People don't need to hold so much of their wealth in the form of cash, so they are trying to spend it. But if the Fed and the banks don't take steps to reduce the amount of cash, then the public's attempts to get rid of unwanted cash can only result in higher prices, and perhaps some extra spending-related growth. It's a classic case of too much money chasing too few goods and services. And Fed Chair Powell has just added some incentives for people to try to reduce their cash balances. He's fanning the flames of inflation at a time when there is plenty of dry fuel lying around.

Chart #3

Now for some good news. Chart #3 shows the evolution of household balance sheets in the form of four major categories. The one thing that is not soaring is debt, which has increased by a mere 20% since just prior to the 2008-09 Great Recession. 

Chart #4

With private sector debt having grown far less than total assets, households' leverage has declined by 45% from its all-time peak in mid-2008. The public hasn't had such a healthy balance sheet since the early 1970s (which was about the time that inflation started accelerating). Hmmm....

Chart #5

In inflation-adjusted terms, household net worth is at another all-time high: $142 trillion. 

Chart #6

On a per capita and inflation-adjusted basis, the story is the same (see Chart #6). We've never been richer as a society.

Chart #7

Total federal debt owed to the public is now about $22 trillion, or about the same as annual GDP. It hasn't been that high since WWII. So it's amazing that, as Chart #8 shows, federal debt has not exploded relative to the net worth of the private sector. As I've shown in previous posts, the burden of all that debt is historically quite low, thanks to extraordinarily low interest rates. 

Chart #8

Chart #8 adds some color to my prior post, "What's wrong with gold?" What it suggests is that gold prices are weak today because the market is anticipating higher short-term interest rates. The red line shows the yield on 3-yr forward Eurodollar futures contracts (inverted), which is a good proxy for where the market thinks the federal funds rate will be in three years' time. Gold peaked when forward interest rate expectations were at an all-time low. Why? Because super-low interest rates pose the risk of higher inflation. With the Fed now talking about raising rates (albeit sometime next year, and very slowly thereafter), gold doesn't make as much sense because forward-looking investors are judging the risk of future inflation to be somewhat less than it was a few years ago.

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Economics

First Weekly Outflow From Stocks In 2021

First Weekly Outflow From Stocks In 2021

After a tremendous stretch of non-stop weekly inflows into mutual funds and related investment products…

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First Weekly Outflow From Stocks In 2021

After a tremendous stretch of non-stop weekly inflows into mutual funds and related investment products since before the start of 2021, the latest week showed net selling of equities for the first time this year.

According to EPFR, net flows into global equity funds turned negative in the week ending September 22 to the tune of -$28.6BN vs +$45BN last week (which was one of the top 3 largest inflows on record), alongside the sizable drawdown in markets in the start of the week (if not the end). This was the biggest outflow from US stocks since Feb 2018. Offsetting the equity outflow was a massive $39.6BN going into cash (the largest since May’21), a modest $10.0BN into bonds (the smallest in 9 weeks), and a small $84MM into gold.

A more detailed breakdown of the equity flows by geographic segment:

  • US: largest outflow since Feb’18 ($28.6bn)
  • Japan: largest inflow in 8 weeks ($0.5bn)
  • Europe: largest outflow since Dec’20 ($1.8bn)
  • EM: inflows past 7 weeks ($2.6bn)

By style, the outflows were focused on US small cap ($2.9bn), US value ($3.3bn), US growth ($9.8bn), US large cap ($14.2bn).

By sector, the selling was pervasive with ever sector seeing outflows: energy ($0.2bn), real estate ($0.2bn); outflows materials ($12mn), coms svs ($0.1bn), utils ($0.2bn), hcare ($0.1bn), financials ($0.5bn), consumer ($1.0bn), tech ($1.2bn).

A key driver for the outflow according to BofA is pessimism over passage of $1tn BIB (Bipartisan Infrastructure Bill) scheduled Sep 27th & $3.5tn BBB (Build Back Better) Reconciliation which caused 2nd biggest outflow ever from infrastructure funds and largest consumer funds outflow YTD.

As Bank of America notes, we also had the first outflow from tech funds - the perennial market generals - since June.

The net selling was concentrated in the US market, although investors also net sold Western European shares. While Europe saw a total of $1.8BN in outflows, Goldman shows that demand for German equities has cooled ahead of this weekend's federal elections as shown in the bank's chart below.

Modest net selling of global EM benchmark products was more than offset by net inflows into country-specific products, including China-dedicated funds. By sector the largest net outflows (scaled by AUM) were from industrials.

Flows into fixed income products also cooled slightly (though remained positive), while FX flows favored CNY.

The question, as BofA's CIO Michael Hartnett suggests, is whether this is the end of the torrent of institutional and retail buying observed YTD. It matters because as the Bank of America strategist notes, global equity flows & global equity prices have been 93% correlated since ‘02, with both at all-time highs although in ‘21 equity inflows are much higher (>90%) than price (12%).

The BofA strategist also notes that despite the massive inflows in 2021, broad global indices such as NYSE (US stocks, ADRs, bond ETFs), S&P500 equal weighted, and ACWI ex-US have been stuck in elevated holding patterns for the past 6 months.

Finally, while the Monday meltdown may explain the outflow, how does one explain the latest week meltup? Well, as Hartnett explains, confirming the "bubble zeitgeist", majority of traders are “full-invested bears” but the anecdotal ratio of clients in “melt-up” vs “melt-down” camps currently 8:2, hence bullish price reaction to China/Fed/fiscal events this week, i.e., a vast majority are BTFDers.

According to the BofA CIO, history says the best way to hedge “bubble” is via “long leadership, long distressed” barbell, i.e. long leadership of bull (today = IG, tech, biotech…) & long distressed, cyclical plays (today = EM, energy, small cap) as investors chase laggards (the only market that outperformed Nasdaq in ’99 TMT bubble was Russia).

Tyler Durden Fri, 09/24/2021 - 17:00
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