Month: April 2024

By Ernest Hoffman
April 22, 2024

Gold is rallying after the U.S. housing market surpassed all expectations and showed surprising strength in March, according to the latest government data.

New home sales shot up 8.8% last month to a seasonally adjusted annual sales rate of 693,000 homes, well above March’s downwardly revised rate of 637,000, which was originally reported as 664,000, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development announced on Tuesday.

The data was far better than expected, as consensus forecasts looked for a 2.7% increase to a sales rate of 668,000 homes.

After spending the overnight and much of the morning in negative territory, gold prices have rallied in the wake of the housing data release. Spot gold last traded at $2,329.55 an ounce, up 0.08% on the day.

The U.S. housing sector has struggled since the Federal Reserve’s aggressive monetary policy pushed mortgage rates to multi-year highs, while a low supply of new homes is keeping prices elevated.

The report said the median sales price of new houses sold in March was $430,700, while the average sales price was $524,800.

Looking at the inventory of homes for sale, the report said there were an estimated 477,000 new houses for sale at the end of March, representing 8.3 months of supply at the current sales rate.

By Ernest Hoffman

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By Neils Christensen
April 22, 2024

Billionaire investor Ray Dalio has had a mixed relationship with the U.S. dollar over the last few years, and it appears he is once again raising doubts about the health of the greenback.

In a commentary posted to LinkedIn on Thursday, the former Bridgewater Associates CEO said he is holding gold as a hedge against a potential debt crisis and higher inflation.

The comments come as the U.S. government’s burgeoning debt comes into greater focus. The U.S. national debt has surpassed $34.5 trillion. However, this is not just a United States-based threat.

During its annual spring meeting in Washington, D.C., the International Monetary Fund said in its Fiscal Monitor that China and the U.S. will drive global public debt over the next five years.

The IMF projects that public debt in the world’s two largest economies could double by 2053. They also singled out the U.K. and Italy as two nations that face significant fiscal risks as their government debt rises.

“History and logic show that when there are big risks that the debts will either 1) not be paid back or 2) be paid back with money of depreciated value, the debt and the money become unattractive,” Dalio said in his commentary. “Since debts are promises to pay money, when a government has too much debt to be paid, its central bank is likely to print money. This prevents a big debt squeeze from happening by devaluing the money (i.e., inflation).”

“Gold, on the other hand, is a non-debt-backed form of money. It’s like cash, except unlike cash and bonds, which are devalued by risks of default or inflation, gold is supported by risks of debt defaults and inflation,” he added.

Dalio said that debt and other financial assets are only attractive when the financial system works well and governments can meet their debt obligations without having to print money.

“On the other hand, when the reverse is the case, gold is a good asset to own,” he said. “That’s the main reason that gold is a good diversifier and why I have some in my portfolio.”

In early 2020, Dalio made headlines across global financial markets as he declared in a LinkedIn post that “cash was trash” in a low-interest-rate environment.

However, in September 2023, Dalio declared that “cash is now good,” as the Federal Reserve pushed interest rates to their highest level in more than 40 years.

In his latest post, he said that gold is one of just a few examples of “good money” in the world.

“It is held by central banks and other investors for this reason,” he said. “In fact, gold is the third-most-held reserve currency by central banks, more so than the yen or renminbi. Cryptocurrencies are also non-debt monies. I don’t know of any other types of non-debt monies, though some people might argue that gems and art act similarly because they are non-debt, portable, and widely accepted storeholds of wealth.”

Rising levels of global debt are a big reason why many commodity analysts have turned significantly bullish on gold, with some looking for prices to hit $3,000 an ounce.

The gold market has seen broad-based gains to record highs against all major global currencies in the last few months.

By Neils Christensen

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By Neils Christensen
April 22, 2024

The gold market is seeing solid selling pressure afte failing to hold its ground at $2,400 an ounce. Although the market has room to fall lower during the summer, one market analyst says that the precious metal remains in a solid position to rally by year-end.

In an interview with K-News, Chantell Schieven, Head of Research at Capitalight Research, said that not only is gold technically overbought, but it has also started its historical seasonal weak period. In this environment, Schieven noted that she sees gold prices potentially falling back to $2,150 an ounce, representing the March breakout level.

Although Schieven is looking for a correction in gold in the next few months, she remains a long-term bull. She said she is raising her year-end price target to $2,500 an ounce, up from $2,400 an ounce.

The comments come as June gold futures start the week with a more than 2% loss, last trading at $2,349.10 an ounce.

At the start of the year, Schieven was the most bullish analyst who participated in the London Bullion Market Association’s annual price forecast.

“It’s been kind of surprising to see gold take out all these levels, and while I do think it goes higher, I do think we need to see a bit of a pullback,” she said. “I don’t think gold goes all the way back to $2,000 or below, but we could see $2,100 before the end of the summer.”

Schieven said that the most significant reason she has turned near-term cautious on gold is due to shifting interest rate expectations that are supporting higher bond yields and a stronger U.S. dollar. Markets are now pushing back the start of the Federal Reserve’s easing cycle until after the summer.

According to the CME FedWatch Tool, markets see less than 20% chance of a rate cut in June. At the same time, the chance of a rate cut in July has dropped below 50%.

“Gold has broken a bit away from its fundamental drivers, and I think we are starting to see these drivers come back into focus, which can be negative for gold,” she said.

However, Schieven added that the gold market has become significantly more nuanced than just following bond yields and the U.S. dollar. Although the Federal Reserve is not expected to cut rates during the summer, it’s unlikely to raise interest rates.

“The Federal Reserve will eventually cut rates this year. I expect to see them cut rates after the 2024 election, and that is when we will see gold prices climb higher and push towards $2,500 an ounce. The summer lows could prove to be a good time to buy for long-term investors.”

At the same time, Schieven said that she expects inflation to play a more critical role in gold’s price action. She pointed out that with the Federal Reserve holding firm on its monetary policy, higher interest rates mean that real rates will rise, lowering gold’s opportunity costs as a non-yielding asset.

“Ultimately, the Fed, even with their hawkish comments, continue to leave themselves room to lower interest rates,” she said. “They will be lowering interest rates even as inflation remains stubbornly above the 2% target. The Federal Reserve can’t afford to maintain higher interest rates because of rising debt levels.”

Looking beyond U.S. monetary policy, Schieven said that she expects gold to remain an attractive safe-haven asset. Although the global economy has seen relatively better-than-expected growth so far this year, Schieven said she has not entirely dismissed the threat of a recession.

She added that rising U.S. debt will strangle economic growth as more money is thrown at just servicing its debt. In March, economists at Bank of America noted that U.S. national debt is rising by $1 trillion every 100 days. Schieven pointed out that this is a significant reason why central banks will continue to buy gold.

“Nobody wants our debt right now,” she said. “As the debt grows, it’s not surprising that central banks want fewer U.S. dollars and want to diversify their holdings.”

Finally, Schieven said that U.S. geopolitical instability as the 2024 election draws closer will also provide new support for gold.

“I don’t really know how to put this, but neither choice is that great. No matter who gets elected, deficits will still rise, and the U.S. dollar will still be devalued,” she said. “Those things are not good for the U.S., but they are certainly good for gold.”

Looking through higher volatility this year, Schieven said that gold remains in a long-term uptrend. She pointed out that during the 1970s, higher inflation, economic uncertainty, and geopolitical turmoil caused gold prices to double.

While that might be an unlikely scenario today, Schieven said that it is not out of the question.

“We do not think it is out of line to look for a $3300+ gold price over the next 5-6 years,” Schieven wrote in a recent report.

By Neils Christensen

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